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The stimulative effect of an unconditional block grant on the decentralized provision of care

Mark Kattenberg and Wouter Vermeulen

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Understanding the impact of central government grants on decentralized healthcare provision is of crucial importance for the design of grant systems, yet empirical evidence on the prevalence of flypaper effects in this domain is rare. We study the decentralization of home care in the Netherlands and exploit the gradual introduction of formula-based equalization to identify the effect of exogenous changes in an unconditional block grant on local expenditure and utilization. A one euro increase in central government grants raises local expenditure by twenty to fifty cents. Adjustments occur through the number of hours as well as through substitution between basic and more advanced types of assistance. These findings suggest that conditioning of grants is not required for the central government to retain a moderate degree of control over the decentralized provision of care.

Keywords: Intergovernmental transfers; Flypaper effect; Decentralization of health care (search for similar items in EconPapers)
JEL-codes: H42 H51 H71 H75 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-hea and nep-pbe
Date: 2017-03-23
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Published in International Tax and Public Finance, 23, March, 2017, 25(1), pp. 166-199. ISSN: 0927-5940

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