The 'Flypaper Effect' is not an anomaly

John Roemer, Holly Liu, Jeffrey Williams and Selva Demiralp
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Selva Demiralp: Department of Economics, University of California Davis

No 306, Working Papers from University of California, Davis, Department of Economics

Abstract: An in-kind subsidy is equivalent, both theoretically and empirically, to an increase of income for an individual consumer. But the equivalence does not empirically carry over to in-kind grants by a central government to a local one: this has been seen as an anomaly and dubbed the â??flypaper effect.â?? We argue that the â??anomalyâ?? label is incorrect: the nonequivalence of increases in grants and community income is predicted, almost everywhere, by models that understand collective decision as the outcome of electoral competition among political parties. In addition, we compute politico-economic equilibria for a model with two independent tax parameters and obtain numerical values that agree with the existing empirical literature.

JEL-codes: D72 H41 H71 H77 (search for similar items in EconPapers)
Pages: 26
Date: 2003-01-15
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Related works:
Journal Article: The “Flypaper Effect” Is Not an Anomaly (2002)
Working Paper: THE ‘FLYPAPER EFFECT’ IS NOT AN ANOMALY
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