Using a discontinuous grant rule to identify the effect of grants on local taxes and spending

Matz Dahlberg (), Eva Mörk (), Jorn Rattso and Hanna Ågren

Journal of Public Economics, 2008, vol. 92, issue 12, 2320-2335

Abstract: When investigating the effects of federal grants on the behavior of lower-level governments, it is hard to defend the handling of grants as an exogenous factor. Federal governments often set grants based on characteristics and performance of decentralized governments. In this paper we make use of a discontinuity in the Swedish grant system in order to estimate the causal effects of general intergovernmental grants on local spending and local tax rates. The formula for the distribution of funds is used as an exclusion restriction in an IV-estimation. We find evidence of crowding-in, where federal grants are shifted to more local spending, but not to reduced local tax rates.

Keywords: Fiscal; federalism; Grants; Local; taxation; Local; government; expenditure; Causal; effects; Discontinuity; analysis (search for similar items in EconPapers)
Date: 2008
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Related works:
Working Paper: Using a discontinuous grant rule to identify the effect of grants on local taxes and spending (2006)
Working Paper: Using a discontinuous grant rule to identify the effect of grants on local taxes and spending (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:92:y:2008:i:12:p:2320-2335

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