Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/82770
Authors: 
Dahlberg, Matz
Mörk, Eva
Rattsø, Jørn
Ågren, Martin
Year of Publication: 
2006
Series/Report no.: 
Working Paper, Department of Economics, Uppsala University 2006:25
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.
Subjects: 
Fiscal federalism
grants
flypaper effect: local taxation
local government expenditure
causal effects
JEL: 
H21
H71
H77
R51
Document Type: 
Working Paper

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