Umeå Economic Studies,
Umeå University, Department of Economics

Abstract: The purpose of this paper is to analyze the determinants of the local public expenditures and, in particular, try to explain the so called ’flypaper effect’. The analysis uses a political economy model to relate the existence and size of the flypaper effect to observable municipal characteristics such as the average tax base, income dispersion andwhether or not a change in the average tax base affects the tax share of the majority voter. The empirical part of the study is based on Swedish data on municipal expenditures and revenues for the period 1996-2004. The results show that the size of the flypaper effect varies among municipalities depending on the relative composition of grant and tax base.

Keywords: Income Dispersion; Local Public Expenditures; Intergovernmental Relations

JEL-codes: D31; H72; H77

39 pages, October 19, 2007

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