Matching versus General Grants: Local Government Response to Child-Care Subsidies

Lars Håkonsen and Trond Erik Lunder

FinanzArchiv: Public Finance Analysis, 2015, vol. 71, issue 3, 299-327

Abstract: We study the effects of a Norwegian experimental scheme in which 20 participating municipalities had their earmarked grants from the central government converted into general grants. The experiment effectively doubled the marginal cost of supplying child care. We analyze the effect on child-care supply and compare the empirical findings with predictions from a numerical two-period model. Using a matching procedure to select a suitable control group, we find that the participating municipalities on average expanded their child-care sector less than municipalities in the control group. The empirical effects are small, considering the large change in relative prices.

Keywords: fiscal federalism; matching grants; price elasticity; intertemporal spending (search for similar items in EconPapers)
JEL-codes: C21 H71 H72 (search for similar items in EconPapers)
Date: 2015
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DOI: 10.1628/001522108X14331675558762

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