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Title:Using a discontinuous grant to identify the effect of grants on local taxes and spending PDF Logo
Authors:Dahlberg, Matz
Mörk, Eva
Rattsø, Jørn
Issue Date:2006
Series/Report no.:CESifo working paper 1857
Abstract:When investigating the effects of federal grants on the behavior of lower-level governments, it is hard to defend the handling of grants as an exogenous factor affecting local governments; federal governments often set grants based on characteristics and performance of local governments. In this paper we make use of a discontinuity in the Swedish grant system in order to estimate the causal effects of general intergovernmental grants on local spending and local tax rates. The formula for the distribution of funds is used as an exclusion restriction in an IV-estimation. We find evidence of crowding-in, where federal grants are shifted to more local spending, but not to reduced local tax rates. Our results thus confirm a flypaper effect for Sweden.
JEL:H21
H71
H77
R51
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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