Grant Effects on Public Finance for Local Governments with Self-selection Behavior

Marivic Delos Santos Mamaradlo, Cheng-Tao Tang and Chun Yee Wong

Hitotsubashi Journal of Economics, 2021, vol. 62, issue 1, 33-58

Abstract: This paper estimates causal effects of intergovernmental grants on local expenditure and tax revenue. This is done by utilizing a rule-based grant distribution scheme in the Philippines. The results provide evidence of a flypaper effect among both municipalities and cities in the Philippines, i.e., grants create a large stimulative effect on local spending but have no effect on the reduction of local taxation. The result is robust to a noticeable self-selection bias in the Philippine local governance, where a municipality can opt to convert to a city to receive more grants once it meets conversion criteria.

Keywords: intergovernmental grants; instrumental variable; self-selection; public finance; flypaper effect (search for similar items in EconPapers)
JEL-codes: C26 H71 H72 H77 R51 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:hit:hitjec:v:62:y:2021:i:1:p:33-58

DOI: 10.15057/hje.2021002

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