Is the treatment of intergovernmental aid symmetric?

Abstract

In this note we use a variable parameter model to test for asymmetries in the treatment of intergovernmental aid. The central question is whether local government officials treat intergovernmental aid differently during periods of aid certainty and uncertainty. We find evidence of fiscal replacement for 94% of Wisconsin municipalities and fiscal inducement for only a small handful of municipalities. The lower the dependency on shared revenues, the higher the odds that the municipality will replace lost shared revenues with own source revenues.