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Local Spending, Transfers, and Costly Tax Collection

Fernando Aragon ()

National Tax Journal, 2013, vol. 66, issue 2, 343-370

Abstract: This paper studies the effect of relatively costly local taxation on the fiscal response of local governments to intergovernmental transfers. Using a panel dataset of Peruvian municipalities, I find robust evidence that the central government’s grants have a greater stimulatory effect in municipalities facing higher local tax collection costs. The results are consistent with the hypothesis that relatively costly local taxation may partially explain the flypaper effect.

Date: 2013
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Handle: RePEc:ntj:journl:v:66:y:2013:i:2:p:343-370