THE ‘FLYPAPER EFFECT’ IS NOT AN ANOMALY

John Roemer () and Joaquim Silvestre

Department of Economics from California Davis - Department of Economics

Abstract: An in-kind subsidy is equivalent, both theoretically and empirically, to an increase of income for an individual consumer. But the equivalence does not empirically carry over to in-kind grants by a central government to a local one: this has been seen as an anomaly and dubbed the “flypaper effect.” We argue that the “anomaly” label is incorrect: the nonequivalence of increases in grants and community income is predicted, almost everywhere, by models that understand collective decision as the outcome of electoral competition among political parties. In addition, we compute politico-economic equilibria for a model with two independent tax parameters and obtain numerical values that agree with the existing empirical literature.

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Related works:
Working Paper: The 'Flypaper Effect' Is Not an Anomaly (2000)
Journal Article: The "Flypaper Effect" Is Not an Anomaly (2002)
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Persistent link: http://EconPapers.repec.org/RePEc:fth:caldec:00-04

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