The flypaper effect and the deadweight loss from taxation

Hamilton, Jonathan

doi:10.1016/0094-1190(86)90036-7

Cited by 66 publications

(58 citation statements)

References 5 publications

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“…last, it is important to mention that when tax revenue per capita is the dependent variable (column 2 in both linear and logarithmic models), then we have an empiri� cal correspondence to the theoretical model proposed by Hamilton (1986). For the linear model, it is possible to see that the marginal effect of income (significant and positive) is one thousand times larger than transfer (which is not significant) to increase tax revenue.…”

Section: Decomposing the Effect On Tax Collection Efficiency -Sur Anasupporting

confidence: 59%

“…For the second stage, we extend Hamilton (1986) by accommodating a tax col� lection function in the local tax revenues. The author presents a simple model of optimal tax theory that focuses on the deadweight loss from taxation as the possible cause of the flypaper effect and postulates that grants allow for lower local taxes.…”

Section: The Flypaper Effect Revisited -A Simple Modelmentioning

confidence: 99%

“…an exception is Hamilton (1986), who demonstrates that the deadweight loss from taxation can be a possible cause of the empirically observed flypaper effect.…”

Section: Introductionmentioning

confidence: 99%

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Flypaper effect revisited: evidence for tax collection efficiency in Brazilian municipalities

2011

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ResumoO objetivo do artigo é propor uma reinterpretação do tradicional efeito flypaper, fenômeno que ocorre quando as transferências do governo central para os governos locais aumentam o gasto público mais do que aumentos na renda privada. Aqui as transferências mais altas podem induzir menor eficiência na coleta de impostos do que os aumentos na renda. Inicialmente construímos um modelo que aponta a possibilidade de existência de efeito flypaper no contexto de um modelo de maximização padrão por parte dos governos locais. Depois construímos scores de eficiência para os municípios brasileiros usando Free Disposable Hull (FDH), levando em consideração dois produtos: a quantidade de impostos per capita coletados localmente -receita tributária -e o tamanho da economia informal -base tributária. Finalmente, usando mínimos quadrados dois estágios e regressões Tobit, em que o instrumento é construído a partir das regras de cálculo das transferências não condicionais estabelecidas na Constituição de 1988, e onde encontramos evidência de que as transferências têm o efeito oposto (negativo) ao da renda sobre a eficiência na taxação, chegou-se à reinterpretação do efeito flypaper. Palavras-Chave efeito flypaper, eficiência, coleta de impostos AbstractThe purpose of this article is to propose a reinterpretation of the traditional flypaper effect according to which central government transfers to local governments increase public spending by more than do increases in private income. Here, higher transfers from the federal government might induce less efficiency in local tax collection opposed to the income effect. Initially, we build a model in order to point out the possible existence of that flypaper effect in a context of standard maximization on the part of local governments. Next, we construct efficiency scores for Brazilian municipalities using Free Disposable Hull (FDH), taking into consideration two outputs: amount of per capita local tax collected -tax revenue-and the size of local informal economy -tax base. Last, using two stages least squares and Tobit regressions, which the instruments is built upon the rules established in the 1988 Brazilian Constitution and where we find that unconditional transfer funds to municipalities, we estimate that transfers have the opposite effect (negative) of consumer's income on efficiency of taxation, which leads us to a reinterpretation of the flypaper effect.

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Section: Decomposing the Effect On Tax Collection Efficiency -Sur Anasupporting

confidence: 59%

Section: The Flypaper Effect Revisited -A Simple Modelmentioning

confidence: 99%

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Flypaper effect revisited: evidence for tax collection efficiency in Brazilian municipalities

2011

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“…As indicated before, the effect of grants on real per capita provincial-local expenditure can be obtained as the Thus our results indicate that lump-sum grants have a higher stimulative effect on provinciallocal spending than personal income which is consistent with the flypaper literature. Moreover, since the stimulative effects of grants increase with the MCF, the results suggest that the flypaper effect increases with the MCF as argued in Hamilton (1986) and Dahlby (2011).…”

Section: We Begin Our Analysis By Estimating the Basic Model With Ordmentioning

confidence: 56%

“…Hamilton (1986) was the first to point out that a flypaper effect can arise when a subnational governments uses distortionary taxes to finance at least part of their expenditures. Becker and Mulligan (2003) and Volden (2007) have developed political economy models that exhibit a flypaper effect because recipient governments rely on distortionary taxes to finance part of their spending.…”

Section: Introductionmentioning

confidence: 99%

The stimulative effects of intergovernmental grants and the marginal cost of public funds

Dahlby

Ferede

2015

Int Tax Public Finance

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte.

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An analysis of asymmetric effect of federal transfers across Indian states

Suha,

Kumar,

Renjith

2023

Journal of Public Affairs

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This study empirically examines the asymmetric effect of federal transfers in India using a panel dataset of 18 states from 2000–2001 to 2019–2020. In mapping the asymmetric effect of federal transfers on subnational spending across the Indian states, we test it in the extended ‘flypaper effect’ framework, examining whether subnational expenditures respond in the same way to changes in federal transfers. To quantify the extent of the asymmetric effect on the subnational expenditure, we employed the panel non‐linear ARDL model. The results suggest that subnational spending has a greater asymmetric response to the increase in federal transfers than to a decrease. At the disaggregate level, ten out of 18 states have a fiscal replacement kind of asymmetric effect in any spending specifications. But only three validate it in the capital and development spending, and seven states validating in the non‐development expenditure on the revenue accounts. Replacing the cut in federal transfers with other revenue sources that prioritise non‐development spending over development spending is problematic.

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The flypaper effect and the deadweight loss from taxation

Cited by 66 publications

References 5 publications

Flypaper effect revisited: evidence for tax collection efficiency in Brazilian municipalities

Flypaper effect revisited: evidence for tax collection efficiency in Brazilian municipalities

The stimulative effects of intergovernmental grants and the marginal cost of public funds

An analysis of asymmetric effect of federal transfers across Indian states

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