Intergovernmental grants and public input provision: theory and evidence from Germany

Sebastian Hauptmeier

No 07-006, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: This paper uses a simple model of fiscal competition between local jurisdictions to analyse the impact of intergovernmental grants on the composition of public spending. We find that a higher degree of redistribution within a system of ?fiscal equalisation? coincides with a smaller overall share of spending on productivity-enhancing public inputs. Furthermore, in order to test the theoretical predictions, we carry out an empirical analysis based on a panel of German states. The results are consistent with the theoretical findings and support the existence of an incentive effect of intergovernmental grants on state expenditure policies.

Keywords: Fiscal competition; Fiscal equalisation; Intergovernmental grants; Public expenditure; Germany (search for similar items in EconPapers)
JEL-codes: H72 H77 (search for similar items in EconPapers)
Date: 2007
New Economics Papers: this item is included in nep-pbe and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:5493

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