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<p>This paper investigates the effects of intergovernmental grants on municipal labour demand in Finland and Sweden during the period 1985-2002. Both these countries have large public sectors in which local authorities play a significant role. In addition, both countries went through major grant reforms in 1993, reforms that meant that most targeted grants were replaced by general, non-earmarked grants. This allows for studying the effects of the different types of grants separately. The results suggest that targeted grants affect Finnish municipal employment more than general ones do, at least when looking at levels. When looking at elasticities, however, the opposite is indicated. In Sweden intergovernmental grants appear to have no effect at all on municipal employment before the reform, but after the estimated elasticity is 0.10. This is somewhat lower than in Finland, where the estimated elasticities are 0.13 and 0.14 before and after the reform, respectively. The results also lend additional support to the so called “flypaper effect”, an empirical phenomenon that has been observed in numerous previous studies.</p>

This paper investigates the effects of intergovernmental grants on municipal labour demand in Finland and Sweden during the period 1985-2002. Both these countries have large public sectors in which local authorities play a significant role. In addition, both countries went through major grant reforms in 1993, reforms that meant that most targeted grants were replaced by general, non-earmarked grants. This allows for studying the effects of the different types of grants separately. The results suggest that targeted grants affect Finnish municipal employment more than general ones do, at least when looking at levels. When looking at elasticities, however, the opposite is indicated. In Sweden intergovernmental grants appear to have no effect at all on municipal employment before the reform, but after the estimated elasticity is 0.10. This is somewhat lower than in Finland, where the estimated elasticities are 0.13 and 0.14 before and after the reform, respectively. The results also lend additional support to the so called “flypaper effect”, an empirical phenomenon that has been observed in numerous previous studies.

This dissertation consists of two independent essays on public economics. The first essay studies the consequences of fiscal decentralization on poverty and income inequalities. This essay describes the possible channels through which fiscal decentralization might affect poverty and income inequalities, and carries out an empirical analysis with data of a large number of countries at different stages of development, for the period 1971-2000. Fiscal decentralization is found to have significant effects on poverty and income inequalities. These findings are important because they suggest, contrary to the traditional public finance theory, that sub-national governments can play an important role in the reduction of poverty and income inequalities. The second essay studies the second best solution to the public expenditures’ problem in the presence of a proportional labor income tax. By allowing the tax base to vary with the taxpayers’ behavioral responses to taxation, we derive the “effective” budget constraint faced by the government, which describes the set of affordable combinations of public and private goods. We show that the optimal solution to the government problem corresponds to the point of tangency between the effective budget constraint and the highest attainable social indifference curve. The traditional normative prescription for public expenditures under a second-best scenario does not satisfy this condition, and therefore it provides a suboptimal solution. Finally, we use the same analytical framework in order to explain the flypaper effect, an empirical regularity that has for long challenged the conventional theory.

El presente trabajo se centra en el análisis de los efectos de las transferencias provenientes de la provincia de Buenos Aires hacia los municipios que la conforman. Se investiga la incidencia de las mismas sobre el gasto total y su desagregación según finalidad y objeto del gasto. En este sentido, se testea la existencia de <i>flypaper effect</i>, <i>bandwagonism effect</i> y la hipótesis de asimetría. Para ello se utilizan regresiones de datos de panel mediante los cuales se confirma la existencia de <i>flypaper effect</i>, pero no del <i>bandwagonism effect</i>. Finalmente la evidencia sobre la hipótesis de asimetría es confirmada en el caso del Gasto Total siendo del tipo de Asimetría por “Inducción Fiscal” y es ambigua en el caso de desagregación del mismo dependiendo de cada caso particular.

nÃo hà / O efeito flypaper à um dos temas mais discutidos da literatura do federalismo fiscal, haja vista as distorÃÃes causadas pelo sistema de transferÃncias, pois os recursos advindos de transferÃncias tÃm um efeito mais estimulante sobre os gastos governamentais do que um aumento equivalente da renda privada da populaÃÃo residente. Diante disso, este trabalho, se propÃe a analisar se o comportamento dos gastos pÃblicos nos municÃpios cearenses condiz com a prÃtica definida pela literatura como efeito flypaper. Para tanto, utiliza-se da metodologia de dados em painel, uma vez que as informaÃÃes sobre gastos, arrecadaÃÃo, populaÃÃo, PIB e transferÃncias dos 184 municÃpios do Cearà compreende o perÃodo entre 1999 e 2009. Conforme os resultados aferidos pelo efeito marginal da renda, representados na funÃÃo gasto pelo PIB, supera o notado para a transferÃncia corrente. Pode-se concluir que a prÃtica descrita pela literatura como efeito flypaper nÃo condiz com a realidade das administraÃÃes municipais do CearÃ. / The flypaper effect is one of the most discussed topics of the literature of fiscal federalism, given that the distortions caused by the transfer system because the proceeds of transfers have a more stimulating effect on government spending than an equivalent increase in private income of the population resident. Therefore, this work aims to analyze the behavior of public expenditure in the municipalities of Cearà consistent with the practice adopted by the literature as flypaper effect. For this, we used the methodology of panel data, since the information about expenses, revenues, population, PIB and transfers of the 184 municipalities in Cearà covers the period between 1999 and 2009. According to the results measured by the marginal effect of income, represented by GDP spent in the function, overcomes noticed for the current transfer can be concluded that the practice described in the literature as flypaper effect is not consistent with the reality of municipalities in CearÃ.

The flypaper effect states that grants-in-aid increases public spending more than a comparable increase in personal income. If aid increases spending, then there is the possibility that it displaces own-source revenue or a portion of the aid itself is used to meet other priorities of governments, fungibility. Different local government structures have the tendency to prioritize either the operating or capital budget. Empirical evidence shows that federal and state grants have different flypaper effect. While fungible state aid is allocated to the operating budget, that of federal goes to the capital budget. Council-manager and mayor-council form of governments do not allocate fungible intergovernmental aid differently between the capital and operating budgets.

Submitted by Isabella Souto Pera Simões (isasps@gmail.com) on 2014-01-20T00:02:45Z No. of bitstreams: 1 Dissertação Isabella - Apropriação das transferências pelas burocracia_vbiblioteca.pdf: 553541 bytes, checksum: 1856ebed70c40ef9f62836e22fe0072d (MD5) / Approved for entry into archive by Vera Lúcia Mourão (vera.mourao@fgv.br) on 2014-01-20T12:22:10Z (GMT) No. of bitstreams: 1 Dissertação Isabella - Apropriação das transferências pelas burocracia_vbiblioteca.pdf: 553541 bytes, checksum: 1856ebed70c40ef9f62836e22fe0072d (MD5) / Made available in DSpace on 2014-01-20T13:25:18Z (GMT). No. of bitstreams: 1 Dissertação Isabella - Apropriação das transferências pelas burocracia_vbiblioteca.pdf: 553541 bytes, checksum: 1856ebed70c40ef9f62836e22fe0072d (MD5) Previous issue date: 2013-12-19 / Despite what would be expected by a simple theoretical prediction, several empiric studies have verified that an increase of the grants-in-aid leads to greater public spending in comparison to an equivalent raise in the citizen’s income. One of the hypotheses for this phenomenon, known as the flypaper effect, is that the bureaucracy appropriates of grants through wages, which is consistent with the assumption raised by the literature that bureaucrats would be interested in maximizing their own budget and would take advantage of the information and power asymmetries compared to the electorate. This paper aims to investigate whether this assumption is demonstrated empirically for Brazilian municipalities, verifying the relationship between transfers and the wage differential between the public and private spheres. Therefore, we use municipalities’ data panel from 2002 to 2011 and an instrumental variables model. The wage differential is obtained through the Oaxaca Decomposition, which isolates the effect of individual characteristics in wages from the resource appropriation result. The results show that there are evidences of appropriation, not only when public and private sectors are compared as a whole, but also when subsectors are considered. / Ao contrário do que seria esperado em uma previsão teórica simples, diversos trabalhos empíricos têm verificado que um aumento das transferências intergovernamentais gera um gasto público maior do que uma elevação equivalente na renda dos indivíduos. Uma das hipóteses para este fenômeno, conhecido com o flypaper effect, é de que a burocracia se apropria das transferências por meio de salários, o que é condizente com o pressuposto de que os burocratas estariam interessados em maximizar seu próprio orçamento, e se aproveitariam da assimetria de informação e poder em relação ao eleitorado. Este trabalho tem o objetivo de investigar se tal pressuposto se comprova empiricamente para os municípios brasileiros, verificando a relação entre as transferências incondicionais e o diferencial de salários entre as esferas pública e privada. Para tanto, utilizamos um painel de municípios que cobre o período de 2002 a 2011 e um modelo econométrico de variável instrumental. Para medir o diferencial de salário, foi usada a Decomposição de Oaxaca, que separa o efeito das características individuais daquele que seria gerado pela apropriação. Os resultados apontam para a ocorrência de apropriação, considerando não só o setor público e privado formal como um todo, mas também seus subsetores.

We investigate how lump-sum equalization transfers affect expenditures and taxes in the municipalities of the largest German state North Rhine-Westphalia. In general, those general-purpose transfers cannot be treated as exogenous variables. Thus, for the identification of causal effects, two exogenous adjustments in the transfer allocation formula are used as instrumental variables. Findings suggest the existence of the “flypaper effect” – municipalities use transfers to increase expenditures but do not reduce tax rates. Extra money from transfers is mainly used to finance social expenditures and public facilities. A set of robustness checks, including a spatial dependence model, confirm the results.

nÃo hà / The purpose of this study is to analyze the existence of the flypaper effect in the municipalities of CearÃ, for the year 2000. For this purpose, it was used the threshold model that through the construction of groups, divided the sample into 03 groups of municipalities, for each of the two variables used as threshold: salary and political strength. From the results obtained, concluded that there are groups that were not detected flypaper effect, but in most municipalities of Cearà this effect exists and is the result of distortions of intergovernmental transfers, which requires, among other aspects, a biggest fiscal effort of the municipalities and an expansion of fiscal decentralization started at Brazilian Constitution of 1988, aiming to mitigate flypaper. / PropÃe-se analisar a existÃncia do efeito flypaper nos municÃpios cearenses, para o ano de 2000. Para esse objetivo, utilizou-se do modelo threshold que, mediante o estabelecimento de grupos, dividiu a amostra em trÃs conjuntos de municÃpios, para cada uma das duas variÃveis utilizadas como threshold: salÃrio e forÃa polÃtica. Com base nos resultados, concluiu-se que hà grupos em que nÃo foi detectado efeito flypaper, mas, na maioria dos municÃpios cearenses, esse efeito existe e resulta das distorÃÃes das transferÃncias intergovernamentais, o que requer, dentre outros aspectos, um esforÃo fiscal maior dos municÃpios e uma expansÃo da descentralizaÃÃo fiscal iniciada na ConstituiÃÃo Brasileira de 1988, visando mitigar o flypaper.