Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/24747
Authors: 
Kalb, Alexander
Year of Publication: 
2008
Series/Report no.: 
ZEW Discussion Papers 08-051
Abstract: 
In this paper we use a simple bureaucracy model of fiscal illusion to analyze the impact of intergovernmental grants on the cost efficiency of local jurisdictions. We find that a higher degree of redistribution within a system of fiscal equalization or an increase in the amount of grants received by a local jurisdiction leads to an extension of organizational slack or X-inefficiency in that jurisdiction. This theoretical prediction is tested by conducting an empirical analysis using a broad panel of German municipalities. The results of the empirical analysis are consistent with the theoretical findings and therefore support the existence of a negative incentive effect of intergovernmental grants on local authorities' cost efficiency.
Subjects: 
Cost efficiency
Fiscal equalisation
Intergovernmental grants
Bureaucracy
Stochastic frontier analysis
German municipalities
JEL: 
H11
H77
Document Type: 
Working Paper

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