Identifying the Flypaper Effect in the Presence of Spatial Dependence: Evidence from Education in China’s Counties

Yihua Yu (), Jing Wang and Xi Tian

MPRA Paper from University Library of Munich, Germany

Abstract: In the context of China without a median voter system, this study examines whether the “flypaper effect”, an unconditional lump-sum grant from the upper governments to the county governments increases spending in a greater proportion than an equivalent rise in local income, holds true in China. Using China’s county-level education data during 2007, the models have been estimated using a spatial econometric technique that accounts for spatial interaction behavior on public education expenditure across local governments. We find that, in the presence of spatial interdependence, there is no evidence of a “flypaper effect” when different spatial weighting schemes and the endogeneity problem of education grants are accounted for. Rather, the “anti-flypaper effect” is found. Important policy implications are drawn for China’s fiscal decentralization reform.

Keywords: Flypaper effect; Grants; Local government expenditure; Spatial econometrics (search for similar items in EconPapers)
JEL-codes: C23 H71 H77 R12 (search for similar items in EconPapers)
Date: 2013-06
New Economics Papers: this item is included in nep-cna, nep-geo and nep-ure
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Journal Article: Identifying the Flypaper Effect in the Presence of Spatial Dependence: Evidence from Education in China's Counties (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:61616

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