Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/178424
Authors: 
Langer, Sebastian
Korzhenevych, Artem
Year of Publication: 
2018
Series/Report no.: 
CEPIE Working Paper No. 01/18
Abstract: 
We investigate how lump-sum equalization transfers affect expenditures and taxes in the municipalities of the largest German state North Rhine-Westphalia. In general, those general-purpose transfers cannot be treated as exogenous variables. Thus, for the identification of causal effects, two exogenous adjustments in the transfer allocation formula are used as instrumental variables. Findings suggest the existence of the "flypaper effect" - municipalities use transfers to increase expenditures but do not reduce tax rates. Extra money from transfers is mainly used to finance social expenditures and public facilities. A set of robustness checks, including a spatial dependence model, confirm the results.
Subjects: 
flypaper effect
local government expenditure
transfers
local taxation
Flypaper Effekt
Regionalregierung
Transfers
regionale Steuern
JEL: 
H21
H70
H71
H72
H77
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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