The Flypaper Effect

Robert P. Inman

No 14579, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The flypaper effect results when a dollar of exogenous grants-in-aid leads to significantly greater public spending than an equivalent dollar of citizen income: Money sticks where it hits. Viewing governments as agents for a representative citizen voter, this empirical result is an anomaly. Four alternative explanations have been offered. First, it's a data problem; matching grants have been mis-classified as exogenous aid. Second, it's an econometric problem; exogenous aid is correlated with omitted variables leading to a downward bias in estimates of income's effects and an upward bias in estimates of aid's effects. Third, it's a specification problem: the representative citizen either fails to observe lump-sum aid, or sees aid but mis-perceives its impact as an average price effect, or finally, sees and understands aid's budgetary effects but allocates "public" and "private" monies through separate "mental accounts." The empirical evidence suggests none of these explanations is sufficient. A fourth explanation seems most promising: It's politics. Rather than an anomaly, the flypaper effect is best seen as an outcome of political institutions and the associated incentives of elected officials.

JEL-codes: H72 H77 P16 (search for similar items in EconPapers)
Date: 2008-12
Note: PE POL
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (102)

Downloads: (external link)
http://www.nber.org/papers/w14579.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:14579

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w14579

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().