Granting public or private consumption? Effects of grants on local public spending and income taxes

Heléne Lundqvist

International Tax and Public Finance, 2015, vol. 22, issue 1, 72 pages

Abstract: Most of the early empirical estimates on effects of intergovernmental grants contradict theoretical predictions. In the more recent literature that emphasizes the importance of convincing empirical strategies, the results are more mixed. This paper contributes to this literature by estimating causal effects on local expenditures and income taxes of general, unconditional grants. This is done in a difference-in-difference model utilizing policy-induced increases in grants to a group of remotely populated municipalities in Finland. The finding is that increased grants have a statistically and economically significant positive immediate effect on local expenditures. The effect on local income taxes, while statistically significant, is considerably smaller in magnitude. Furthermore, there is no evidence of dynamic crowding-out—i.e., that the immediate response in expenditures is reversed in later years. Copyright Springer Science+Business Media New York 2015

Keywords: Intergovernmental grants; Difference-in-difference model; Flypaper effect; C23; H71; H72; H77; R51 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (31)

Downloads: (external link)
http://hdl.handle.net/10.1007/s10797-013-9279-7 (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Granting public or private consumption? Effects of grants on local public spending and income taxes (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:itaxpf:v:22:y:2015:i:1:p:41-72

Ordering information: This journal article can be ordered from
http://www.springer. ... ce/journal/10797/PS2

DOI: 10.1007/s10797-013-9279-7

Access Statistics for this article

International Tax and Public Finance is currently edited by Ronald B. Davies and Kimberly Scharf

More articles in International Tax and Public Finance from Springer, International Institute of Public Finance Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().