A model of asymmetries in the flypaper effect

Publius: The Journal of Federalism

Volumn 36, Issue 2, 2006, Pages 213-229

  Deller, Steven C ^a   Maher, Craig S ^b  

^a UNIVERSITY OF WISCONSIN MADISON   (United States)

^b UNIVERSITY OF WISCONSIN OSHKOSH   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 33645565577     PISSN: 00485950     EISSN: None     Source Type: Journal    
DOI: 10.1093/publius/pjj005     Document Type: Article

References (60)

1. David Bradford and Wallace Oates, "Toward a Predictive Theory of Intergovernmental Grants," American Economics Review 61 (August 1971);
2. Edward M. Gramlich and Harvey Galper, "State and Local Fiscal Policy Behavior and Federal Grant Policy," Brooking Papers on Economic Activity 1 (1973);
3. Edward M. Gramlich, "Intergovernmental Grants, a Review of the Empirical Literature," The Political Economy of Fiscal Federalism, ed. Wallace Oates (Lexington, MA, 1977), pp. 219-239;
4. Paul N. Cournat, Edward M. Gramlich, and Daniel L. Rubinfeld, "The Stimulative Effect of Intergovernmental Grants, or Why Money Sticks Where It Hits," Fiscal Federalism and Grants-In-Aid, ed. Peter Meiszkowski and William H. Oakland (Urban Institute, 1979).
5. Stephen Bailey and Stephen Connolly, "The Flypaper Effect: Identifying Areas for Further Research," Public Choice (June 1998): 335-361.
6. Edward M. Gramlich, "Federalism and Federal Deficit Reduction," National Tax Journal (September 1987): 299-313;
7. Edwin J. Benton, "The Effects of Changes in Federal Aid on State and Local Government Spending," Publius 22 (Winter 1992): 71-82;
8. William F. Stine, "Is Local Government Revenue Responsive to Federal Aid Symmetrically? Evidence from Pennsylvania County Governments in an Era of Retrenchment," National Tax Journal 57 (December 1994): 779-816;
9. Steven C. Deller and Norman Walzer, "Structural Shifts in the Treatment of Intergovernmental Aid: The Case of Rural Roads," Journal of Agricultural and Applied Economics 27 (1995): 522-535;
10. Shama Gamkhar and Wallace Oates, "Asymmetries in the Response to Increases and Decreases in Intergovernmental Grants: Some Empirical Findings," National Tax Journal 49 (December 1996): 501-512;
11. Bruno Heyndels, "Asymmetries in the Flypaper Effect: Empirical Evidence for the Flemish Municipalities," Applied Economics 33 (2001): 1329-1334;
12. Ligia Melo, "The Flypaper Effect under Different Institutional Contexts: The Colombian Case," Public Choice 111 (April 2002): 317-345;
13. Rosella Levaggi and Roberto Zanola, "Flypaper Effect and Sluggishness: Evidence from Regional Health Expenditures in Italy," International Tax and Public Finance 10 (September 2003): 535-547.
14. For an excellent description of the rise and fall of the federal revenue program see Bruce Wallin, From Revenue Sharing to Deficit Sharing: General Revenue Sharing and Cities (Washington, DC: Georgetown University Press, 1998).
15. See also Steven C. Deller, Craig S. Maher, and Victor Illudo, "Wisconsin Local Government, State Shared Revenues and the Illusive Flypaper Effect," Public Budgeting, Accounting and Financial Management (forthcoming).
16. Steven C. Deller and Craig S. Maher, "Categorical Municipal Expenditures with a Focus on the Flypaper Effect," Public Budgeting and Finance 25 (September 2005): 73-90.
17. In a democracy, theory suggests that the voter in the middle of the political spectrum, the median voter, will be the swing voter and that political parties will tend to migrate to the middle, reflecting the preferences of the median voter. The key then to understanding the demands for public policy is to understand the preferences of the median voter. Attempts to provide an alternative to the median voter approach have suggested that the median voter approach is too simplistic. For example, Roemer and Silvestre, "The Flypaper Effect Is Not an Anomaly," Journal of Public Economic Theory 4 (January 2002): 1-17,
18. provide a game-theoretic approach in which theoretical results are consistent and agree with the empirical literature. Unfortunately, their theoretical model does not lend itself to easy empirical testing. Clearly, additional theoretical work is required. See John Chubb, "The Political Economy of Federalism," American Political Science Review 79 (1985): 994-1015;
19. Mala Lalvani, "The Flypaper Effect: Evidence from India," Public Budgeting and Finance 22 (September 2002): 67-88.
20. Bradford and Oates, "Toward a Predictive Theory";
21. Gramlich and Galper, "State and Local Fiscal Policy Behavior"
22. Gramlich, "Intergovernmental Grants."
23. Chubb, "The Political Economy of Federalism."
24. Philip J. Grossman, "The Impact of Federal and State Grants on Local Government Spending: A Test of the Fiscal Illusion Hypothesis," Public Finance Quarterly 18 (1990): 313-327.
25. Federal unconditional, or block, grants were excluded since they rarely exist today: Lalvani, "The Flypaper Effect." For more comprehensive reviews of the flypaper literature see Elizabeth Becker, "The Illusion of Fiscal Illusion: Unsticking the Flypaper Effect" Public Choice (1996): 85-102;
26. Brian E. Dollary and Andrew C. Worthington, "The Empirical Analysis of Fiscal Illusion," Journal of Economic Surveys 10 (September 1996): 261-297;
27. Bailey and Connolly, "The Flypaper Effect."
28. Heyndels, "Asymmetries in the Flypaper Effect."
29. Gramlich, "Intergovernmental Grants."
30. Heyndels, "Asymmetries in the Flypaper Effect."
31. Deller and Walzer, "Structural Shifts."
32. Benton, "Effects of Changes in Federal Aid."
33. Gramlich, "Federalism and Federal Deficit Reduction."
34. Levaggi and Zanola, "Flypaper Effect and Sluggishness."
35. Melo, "Flypaper Effect."
36. Deller and Walzer, "Structural Shifts."
37. Stine, "Is Local Government Revenue Responsive?"
38. Gamkhar and Oates, "Asymmetries in the Response to Increases and Decreases in Intergovernmental Grants."
39. U.S. Bureau of Census.
40. Michigan Senate Fiscal Agency, "Michigan's Revenue Sharing Program: History, Description, and A Brief Comparison to Other States" (1996).
41. "Michigan's Revenue Sharing Program: History, Description, and a Brief Comparison to Other States" (1996). Ibid.
42. Wisconsin Legislative Fiscal Bureau, "Shared Revenue Program: Informational Paper #18" (2003).
43. Deller and Walzer, "Structural Shifts."
44. Gramlich, "Federalism and Federal Deficit Reduction";
45. Deller and Walzer, "Structural Shifts"
46. Gamkhar and Oates, "Asymmetries in the Response to Increases and Decreases in Intergovernmental Grants";
47. Heyndels, "Asymmetries in the Flypaper Effect";
48. Melo, "Flypaper Effect";
49. Levaggi and Zanola, "Flypaper Effect and Sluggishness."
50. A second potential empirical problem is that of endogeneity with the variables of equation (7), specifically the change variables ΔE, ΔI, and ΔS. If the Tiebout hypothesis that levels of public services influence economic performance is correct, then we should expect feedback that is not captured in our simple linear regression model. We acknowledge this potential problem and leave it for future work.
51. Deller and Maher, "Categorical Municipal Expenditures."
52. Rebecca Hendrick, "Revenue Diversification: Fiscal Illusion or Flexible Financial Management," Public Budgeting and Finance 22 (December 2002): 52-72.
53. Deller and Maher, "Categorical Municipal Expenditures."
54. Similar results were found when we examined the subcategory expenditures.
55. Deller and Walzer, "Structural Shifts."
56. Heyndels, "Asymmetries in the Flypaper Effect."
57. Gramlich, "Federalism and Federal Deficit Reduction."
58. Deller and Maher, "Categorical Municipal Expenditures."
59. Deller and Walzer, "Structural Shifts."
60. Heyndels, "Asymmetries in the Flypaper Effect."