The (Non)equivalence Theorem When There Are Matching Grants as Well as Lump Sum Grants

Richard R Barnett

Public Choice, 1993, vol. 75, issue 4, 363-69

Abstract: In developing their influential equivalence theorem Bradford and Oates (1971) implicitly assume that there is a lump sum grant only. This paper explores whether the equivalence result continues to hold when the lump sum grant is part of a program of grants-in-aid which includes a matching grant. It is shown that the equivalence result as stated by Bradford and Oates does not hold in these more general circumstances; however, a much weaker equivalence result does hold. This finding is important because there has been a tendency in the empirical literature to assume that the equivalence result holds under quite general circumstances. It is also shown her e that the combined use of lump sum and matching grants can produce a reverse flypaper effect. Copyright 1993 by Kluwer Academic Publishers

Date: 1993
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