Determinants of Expenditure Variation in Finnish Municipalities

Antti Moisio

No 269, Discussion Papers from VATT Institute for Economic Research

Abstract: This paper focuses on two separate issues. First, the expenditure response of Finnish municipalities to price and income changes during the matching grants period is examined. Second, the existence of the so-called "flypaper effect" under the formula-based grant period is tested. Two panel data sets are used: the last eight years (1985-1992) of the matching grants period and the first seven years (1993-1999) of the formula-based period. Seven expenditure categories are analysed. The results suggest that positive price elasticity parameters existed for education expenditures under the matching grants system. For the social welfare and health care sector, price elasticity was negative. One reason for positive price effects may have been the closed-ended grants in the education sector. For the formula-based grants period, the results lend support to the "flypaper effect" because the estimated grant parameters were larger than the income parameters for most of the expenditure categories studied.

Keywords: Grants, price elasticity, income elasticity, flypaper effect, Economic growth, Taloudellinen kasvu, Macroeconomic policy, Talouspolitiikka, Local public economics, Kunnallistalous, Taxation, Verotus, Effectiveness of public services, Julkisten palvelujen vaikuttavuus, C310 - Econometric Methods: Multiple/Simultaneous Equation Models; Multiple Variables: Cross-Sectional Models; Spatial Models; Treatment Effect Models, E600 - Macroeconomic Policy Formation; Macroeconomic Aspects of Public Finance; Macroeconomic Policy; General Outlook: General, H720 - State and Local Budget and Expenditures, I000 - Health, Education, and Welfare: General, O110 - Macroeconomic Analyses of Economic Development (includes macro models and analyses of patterns and determinants of development), R500 - Regional Government Analysis: General, (search for similar items in EconPapers)
Date: 2002
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Citations: View citations in EconPapers (10)

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