Working Paper Series,
Uppsala University, Department of Economics

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.

Keywords: Intergovernmental grants; difference-in-difference; heterogeneous treatment effects; flypaper effect

JEL-codes: C23; H71; H72; H77; R51

41 pages, December 2, 2009

Full text files

FULLTEXT01.pdf  

Download statistics

• Uppsala University, Department of Economics
• Home page for this series

Questions (including download problems) about the papers in this series should be directed to Ulrika Öjdeby ()
Report other problems with accessing this service to Sune Karlsson ().

RePEc:hhs:uunewp:2009_016This page generated on 2024-09-13 22:17:37.