The flypaper effect: evidence from a natural experiment in Hesse

Thushyanthan Baskaran

MPRA Paper from University Library of Munich, Germany

Abstract: Theory suggests that transfers should have an effect on local fiscal policy that is similar to an equivalent increase in local incomes. Yet much of the empirical literature shows that local governments use transfers primarily to increase expenditures. Recent contributions have revisited this so called flypaper effect by using quasi-experimental methods, and some have found that the evidence for the flypaper effect dissipates once endogeneity of transfer receipts is accounted for. This paper contributes to the growing body of quasi-experimental research on the flypaper effect by exploiting a natural experiment in the German state of Hesse. Using discontinuities in the Hessian municipal transfer allocation formula to construct a set of instruments for municipal transfer receipts during the 2001-2010 period, it provides strong evidence in favor of the flypaper effect.

Keywords: Equalization transfers; Local fiscal policy; Population thresholds (search for similar items in EconPapers)
JEL-codes: H70 H71 H72 (search for similar items in EconPapers)
Date: 2012-03
New Economics Papers: this item is included in nep-geo and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/37144/1/MPRA_paper_37144.pdf original version (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:pra:mprapa:37144

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().