Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/82587
Authors: 
Nilsson, Heléne L.
Year of Publication: 
2009
Series/Report no.: 
Working Paper, Department of Economics, Uppsala University 2009:16
Abstract: 
While the literature on how intergovernmental grants affect the budget of receiving jurisdictions is numerous, the very few studies that explicitly deal with likely endogeneity problems focus on grants targeted towards specific sectors or to specific type of recipients. The results from these studies are mixed and make clear that knowledge about grants effects is to this date still insufficient. This paper contributes by estimating causal effects on local expenditures and income tax rates of general, non-targeted grants to Finnish municipalities. This is done in a difference-in-difference model utilizing policy-induced increases in grants to three groups of remotely populated municipalities. The results show no statistically significant response in expenditures to the policy overall. However, when investigating the extent of heterogeneity I find a large, significant effect for two out of the three groups of treated municipalities but a likely null or even negative effect for the third group. The tax rate response is small and seems to be more homogeneous.
Subjects: 
intergovernmental grants
difference-in-difference
heterogeneous treatment effects
flypaper effect
JEL: 
C23
H71
H72
H77
R51
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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