The Flypaper Effect Revisited: Intergovernmental Grants and Local Governance

Abstract

Local governance arrangements shape the incentives of local actors, which may in turn influence fiscal choices. By emphasizing the role of local government institutions in local fiscal choices, we seek to bridge between median voter and Leviathan models prevalent in the literature. We then offer some preliminary evidence to support this explanation by empirically testing several propositions regarding the flypaper effect in intergovernmental grants. One limitation of the median voter model is that the model does not consider political institutions and their influences on government expenditures. In this study, we attempt to capture the influence of political dynamics in determining public expenditures by considering institutional variables. Test results show that the political institutional variables could be one of the explanation variables for the flypaper effect.

Keywords:

• Flypaper effect
• Intergovernmental grants
• Local governance
• Form of government

Notes

^aEven though 1994 County and City Data Book was published in 1994, most of data were collected between 1990 and 1991. It is also worth to note why we do not use recent data. 2000 County and City Data Book was published recently, but some data for the median voter model were not reported. The property tax base data were collected in 1991 while Census of Governments: Taxable Property Values was published in 1992. In the case of 1991 Municipal Year Book, data for the local governance were collected in 1990.

^bThe coefficient is the elasticity since each variable is taken by the natural log.

^cThere has been research to explain bureaucratic monopoly model (or Leviathan model) using the median voter model. Holcombe41 introduces articles which use the median voter model to explain bureaucrats’ budget maximizing behaviors. Wyckoff36 also uses the median voter model to investigate budget maximizing behaviors. His study shows that bureaucratic monopoly model is matched with complicated capital budgets, but the median voter model is matched with the current budgets which are less complicated budget than capital budget.