Capitalization of equalizing grants and the flypaper effect

Allers, Maarten; Vermeulen, Wouter

doi:10.1016/j.regsciurbeco.2016.03.005

Cited by 35 publications

(25 citation statements)

References 34 publications

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“…Recent empirical studies in England and in the Netherlands show that changing intergovernmental grants to municipalities result in corresponding changes in house prices (Hilber, Lyytikäinen, and Vermeulen 2011;Allers and Vermeulen 2016). Presumably, extra grant money is used to improve public services which capitalise into house prices.…”

Section: Effect Of Imc On Service Levelsmentioning

confidence: 99%

“…Instead, we test whether changes in IMC spending result in changes in house prices, building on evidence that suggests that public services capitalise into house prices (Hilber, Lyytikäinen, and Vermeulen 2011;Allers and Vermeulen 2016). A positive effect would suggest that IMC improves public service levels.…”

Section: Effect Of Imc On Service Levelsmentioning

confidence: 99%

“…Municipalities are important providers of amenities, although certainly not the only ones. Previous empirical studies have established that higher intergovernmental grants to municipalities result in higher house prices, both in England (Hilber, Lyytikäinen, and Vermeulen 2011) and in the Netherlands (Allers and Vermeulen 2016). With more money to spend, municipalities can afford more or better public services and become more attractive to homebuyers.…”

Section: Introductionmentioning

confidence: 99%

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Intermunicipal cooperation, public spending and service levels

Allers

Greef

2017

Local Government Studies

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Local governments can increase size in particular policy fields through cooperation with other local governments. This is often thought to improve efficiency, but there is little empirical evidence supporting this hypothesis. We study the case of the Netherlands, which has been a veritable laboratory of intermunicipal cooperation (IMC), using panel data for 2005-2013. We find no evidence that IMC reduces total spending of the average municipality. Indeed, IMC seems to increase spending in small and large municipalities, leaving spending in mid-sized municipalities unaffected. In one specific field, tax collection, spending may be reduced through IMC. Spending in this field is low, which may explain why total spending is unaffected. Instead of lowering spending, municipalities may have used possible cost savings as a result of IMC to improve public service levels. We do not find evidence substantiating this hypothesis, however.

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Section: Effect Of Imc On Service Levelsmentioning

confidence: 99%

Section: Effect Of Imc On Service Levelsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Intermunicipal cooperation, public spending and service levels

Allers

Greef

2017

Local Government Studies

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“…If a municipality becomes more attractive, local demand for housing will rise, resulting in rising house prices (Oates, ; Brueckner, ). Recent empirical studies indicate that intergovernmental grants are fully capitalized into house prices in England and in the Netherlands (Hilber, Lyytikäinen, and Vermeulen, ; Allers and Vermeulen, ). We would expect the same to happen with funds that become available when economies of size are exploited.…”

Section: Research Setupmentioning

confidence: 99%

The Effects of Local Government Amalgamation on Public Spending, Taxation, and Service Levels: Evidence From 15 Years of Municipal Consolidation

Allers

Geertsema

2016

Journal of Regional Science

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153

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We study how municipal amalgamation affects local government spending, taxation, and service provision in the Netherlands. Employing different models, different control groups, and a number of robustness tests, we find no significant effect on aggregate spending or taxation, although spending on administration is reduced. We explore whether this finding might hide amalgamation effects working in opposite directions for different types of municipalities (e.g., small versus large, or homogeneous versus heterogeneous), cancelling each other out. This does not seem to be the case. We also investigate whether amalgamation leads to better public services instead of lower spending, but find no evidence.

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“…The flypaper effect mainly occurs in the unconditional grants (Allers & Vermeulen, 2016). This type of transfer acceptance is supposed to substitute the local tax burden leading to the increase of consumption for both public and private goods.…”

Section: Literature Reviewmentioning

confidence: 99%

Flypaper Effect: Fiscal Illusion and Bureaucratic Model

Kusuma

2017

JESP

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Fiscal decentralization as a delegation form of fiscal authority from the central government to the regional government is expected to accelerate the regional economic growth in accordance with the respective characters in each region. The overspreading potency in utilizing the transfer funds from the central government is more likely to be higher if the regional budget is not designed effectively and efficiently to support the acceleration of regional economic activities. This study aimed at investigating the influence of unconditional grant, regional revenue, gross regional domestic product, and population density towards the regional budget in East Java Province during the implementation of fiscal decentralization. Model specification used was an overview of regional budget, in which the flypaper effect was detected by comparing the coefficient of unconditional grant regression and the regional revenue. It was done by using econometric-model panel data for 33 districts in East Java Province during 2001 -2005. By using fixed-effect model estimation, this study figured out that there was a flypaper effect indicated by the higher elasticity number of unconditional grant than of regional revenue towards the regional budget in East Java Province.

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Capitalization of equalizing grants and the flypaper effect

Cited by 35 publications

References 34 publications

Intermunicipal cooperation, public spending and service levels

Intermunicipal cooperation, public spending and service levels

The Effects of Local Government Amalgamation on Public Spending, Taxation, and Service Levels: Evidence From 15 Years of Municipal Consolidation

Flypaper Effect: Fiscal Illusion and Bureaucratic Model

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