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The stimulative effects of intergovernmental grants and the marginal cost of public funds

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dc.contributor.authorDahlby, Bev
dc.contributor.authorFerede, Ergete
dc.date.accessioned2020-10-09
dc.date.accessioned2022-05-31T01:15:34Z
dc.date.available2022-05-31T01:15:34Z
dc.date.issued2016
dc.description.abstractThis paper tests the hypothesis that the stimulative effects of intergovernmental grants increase with the marginal cost of public funds of the recipient government. We present a simple theoretical framework that shows how a lump-sum transfer stimulates the marginal expenditures of a recipient government through an income effect and a price effect. We then test the prediction of this model using Canadian provincial data and exploit the discontinuity in the equalization grants allocation formula to identify the effects of grants. Our results indicate that the stimulative effects of lump-sum grants on spending increase with the provincial government's marginal cost of public funds (MCF). One policy implication of our results is that higher intergovernmental transfers may be welfare improving if the federal government has a lower MCF than the provinces.
dc.description.urihttps://library.macewan.ca/full-record/edswss/000371272000006
dc.identifier.citationDahlby, B. and Ferede, E. (2016). “The Stimulative Effects of Intergovernmental Grants and the Marginal Cost of Public Funds.” International Tax and Public Finance, 23(1):114-139.
dc.identifier.doihttps://doi.org/10.1007/s10797-015-9352-5
dc.identifier.urihttps://hdl.handle.net/20.500.14078/1822
dc.languageEnglish
dc.language.isoen
dc.rightsAll Rights Reserved
dc.subjectintergovernmental grants
dc.subjectmarginal cost of public funds
dc.subjectflypaper effect
dc.subjectfiscal federalism
dc.titleThe stimulative effects of intergovernmental grants and the marginal cost of public fundsen
dc.typeArticle

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Department of Anthropology, Economics and Political Science