Flypaper Effect in the Republic of Serbia
The main objective of this study is to examine whether the local self-governments (LSG) in Serbia spend their budget as predicted by the flypaper effect (FPE). The presence of the FPE was estimated using the panel regression applied to the population of 166 Serbian LSGs for the period 2011-2019. Similar to findings in other country-specific empirical studies, the results of regression analysis robustly confirmed the presence of the FPE. The occurrence of the FPE is dependent on the level of LSGs’ development and changes in fiscal policy associated with the recent fiscal consolidation. The results obtained indicate that the allocation policy of unconditional transfers in Serbia is rule-based and allegedly free from political factors. The hypothesis that was examined tried to find out whether the overall presence of the FPE is driven by the fiscal illusion deriving from the institutional context of the Serbian LSG public finance despite transparent system of transfers allocation. To the best our knowledge, this is the first empirical study that examined the FPE in Serbia.
Allers, M. A. & Vermeulen, W. (2016) Capitalization of equalizing grants and the flypaper effect, Regional Science and Urban Economics, 58, pp. 115-129, https://doi.org/10.1016/j.regsciurbeco.2016.03.005.
Andrés, V. M., Tomas, T. C. & Vitaliano, E. M. (2022) Flypaper Effect and Precautionary Savings in Public Spending by Municipal Governments In Perú, Journal of Language and Linguistic Studies, 17(4), pp. 2769-2786, https://doi.org/10.5489/jlls.5015917.
Aragon, F. M. (2010) The Flypaper Effect and Costly Tax Collection (London: London School of Economics and Political Science), available at: flypaper_faragon.pdf (warwick.ac.uk) (November 5, 2021).
Bailey, S. J. & Connolly, S. (1998) The flypaper effect: Identifying areas for further research, Public choice, 95(3), pp. 335-361, https://doi.org/10.1023/A:1005053921709.
Baskaran, T. (2016) Intergovernmental Transfers, Local Fiscal Policy, and the Flypaper Effect: Evidence from a German Statestudies, Finanz-Archiv: Zeitschrift für das Gesamte Finanzwesen, 72(1), pp. 1-40, https://doi.org/10.1628/001522116X14462054864882.
Becker, E. (1996) The illusion of fiscal illusion: Unsticking the flypaper effect, Public Choice, 86(1), pp. 85-102. https://doi.org/10.1007/BF00114876.
Cárdenas, O. J. & Sharma, A. (2011) Mexican Municipalities and the Flypaper Effect, Public Budgeting & Finance, 31(3), pp. 73-93, https://doi.org/10.1111/j.1540-5850.2011.00990.x.
Courant, P. N., Gramlich, E. M. & Rubinfeld, D. L. (1979) The stimulative effects of intergovernmental grants: Or why money sticks where it hits (Michigan: University of Michigan, Institute of Public Policy Studies).
Center for Applied European Studies (2013) Finansiranje lokalne samouprave u Srbiji i uticaj političke veze lokalne i republičke vlasti (Belgrade: Center for Applied European Studies), available at: https://www.cpes.org.rs/Downloads/Analize/Finansiranje%20lokalne%20samouprave.pdf (November 5, 2021).
Dahlberg, M., Mörk, E., Rattsø, J. & Ågren, H. (2008) Using a Discontinous Grant Rule to Identify the Effect of Grants on Local Taxes and Spending, Journal of Public Economics, 92(12), pp. 2320–2335, https://doi.org/10.1016/j.jpubeco.2007.05.004.
Dahlby, B. & Ferede, E. (2016) The stimulative effects of intergovernmental grants and the marginal cost of public funds, International Tax and Public Finance, 23(1), pp. 114-139, https://doi.org/10.1007/s10797-015-9352-5.
Deller, S. C. & Maher, C. S. (2006) A model of asymmetries in the flypaper effect, Publius: the journal of federalism, 36(2), pp. 213-229, https://doi.org/10.1093/publius/pjj005.
Dollery, B. E. & Worthington, A. C. (1995) State expenditure and fiscal illusion in Australia: A test of the revenue complexity, revenue elasticity and flypaper hypotheses, Economic Analysis and Policy, 25(2), pp. 125-140, https://doi.org/10.1016/S0313-5926(95)50021-9.
Ekipa Voice (2020) Budžetske rezerve – zlatna koka za nesposobne i trošenje novca građana bez ikakve kontrole (Belgrade: Voice), available at: https://voice.org.rs/voice-budzetske-rezerve-zlatna-koka-za-nesposobne-i-trosenje-novca-gradana-bez-ikakve-kontrole/ (November 5, 2021).
Fikri, F. (2020) Flypaper Effect Analysis on Regional Expenditure in East Java Province, Indonesia, Jurnal Ekonomi & Studi Pembangunan, 21(2), pp. 249-257, https://doi.org/10.18196/jesp.21.2.5045.
Fisher, R. C. (1982) Income and grant effects on local expenditure: The flypaper effect and other difficulties, Journal of urban Economics, 12(3), pp. 324-345, https://doi.org/10.1016/0094-1190(82)90021-3.
Fiskalni savet Republika Srbija (2013) Ocena stanja i perspektiva fiskalne decentralizacije u 2013. godini (Belgrade: Fiskalni savet Republika Srbija), available at: http://www.fiskalnisavet.rs/doc/ocene-i-misljenja/arhiva/ocena_stanja_i_perspektive_fis_decentralizacija_u_2013.pdf (November 5, 2021).
Fiskalni savet Republika Srbija (2017) Lokalne javne finansije: problem, rizici i preporuke, (Belgrade: Fiskalni savet Republika Srbija), available at: http://www.fiskalnisavet.rs/doc/analize-stavovi-predlozi/Rezime_%20Lokalne%20javne%20finansije%20-20problemi,%20rizici%20i%20preporuke%20(2017).pdf (November 5, 2021).
Isik, A., Golit, P. D. & Iorember, P. T. (2022) Unconditional Federal Transfers and State Government Spending: An Investigation of the Flypaper Effect in Nigeria and South Africa, Research Square, pp. 1-38, https://doi.org/10.21203/rs.3.rs-1117690/v1.
Gamkhar, S. & Oates, W. E. (1996) Asymmetries in the Response to Increases and Decreases in Inter-Governmental Grants: Some Empirical Findings, National Tax Journal, 49(4), pp. 501–512, https://doi.org/10.1086/NTJ41789223.
Gemmell, N., Morrissey, O. & Pinar, A. (2002) Fiscal illusion and political accountability: theory and evidence from two local tax regimes in Britain, Public choice, 110(3), pp. 199-224, https://doi.org/10.1023/A:1013015330173.
Gennari, E. & Messina, D. (2014) How sticky are local expenditures in Italy? Assessing the relevance of the flypaper effect through municipal data, International tax and public finance, 21(2), pp. 324-344, https://doi.org/10.1007/s10797-013-9269-9.
Gordon, N. (2004) Do federal grants boost school spending? Evidence from Title I, Journal of Public Economics, 88(9-10), pp. 1771-1792, https://doi.org/10.1016/j.jpubeco.2003.09.002.
Gramlich, E. M., Galper, H., Goldfeld, S. & McGuire, M. (1973) State and local fiscal behavior and federal grant policy, Brookings Papers on Economic Activity, 1973(1), pp. 15-65, https://doi.org/10.2307/2534084.
Grossman, P. J. (1990) The impact of federal and state grants on local government spending: A test of the fiscal illusion hypothesis, Public Finance Quarterly, 18(3), pp. 313-327, https://doi.org/10.1177/109114219001800304.
Guillamón, M. D., Bastida, F. & Benito, B. (2013) The electoral budget cycle on municipal police expenditure, European journal of law and economics, 36(3), pp 447-469, https://doi.org/10.1007/s10657-011-9271-6.
Guziejewska, B. (2021) A Comparative Approach to Fiscal Illusions: a Synthesis of the Conclusions from a Polish Study in Relation to New Ideas and Empirical Research in Selected Countries, Comparative Economic Research. Central and Eastern Europe, 24(2), pp. 7-21.
Guziejewska, B., Majdzińska, A. & Żółtaszek, A. (2021) The Flypaper Effect and Desirable Legislative Changes to Local Government Financing Systems, Lex Localis-Journal of Local Self-Government, 19(3), pp. 587-608, https://doi.org/10.4335/19.3.587-608(2021).
Hamilton, B. W. (1983) The flypaper effect and other anomalies, Journal of Public Economics, 22(3), pp. 347-361, https://doi.org/10.1016/0047-2727(83)90040-3.
Heyndels, B. (2001) Asymmetries in the flypaper effect: empirical evidence for the Flemish municipalities, Applied Economics, 33(10), pp. 1329-1334, https://doi.org/10.1080/00036840010004536.
Hines, J. R. & Thaler, R. H. (1995) The flypaper effect, Journal of economic perspectives, 9(4), pp. 217-226, https://doi.org/10.1257/jep.9.4.217.
Hortas-Rico, M., Rios, V. & Pascual, P. (2019) What shapes the flypaper effect? The role of inequality, politics and institutions (Vigo: Universida de Vigo), available at: (PDF) What shapes the flypaper effect? The role of inequality, politics and institutions (researchgate.net) (November 7, 2021).
Inman, R. P. (2008) The flypaper effect, No. w14579 (Cambridge: National Bureau of Economic Research).
Knight, B. (2002) Endogenous federal grants and crowd-out of state government spending: Theory and evidence from the federal highway aid program, American Economic Review, 92(1), pp. 71-92, https://doi.org/10.1257/000282802760015612.
Law on Local Self-Governance, Official Gazette RS 129/2007, 83/2014, 101/2016, 47/2018.
Law on Territorial Organization, Official Gazette RS 129/2007, 18/2016, 47/2018, 9/2020.
Levaggi, R. & Zanola, R. (2003) Flypaper effect and sluggishness: Evidence from regional health expenditure in Italy, International tax and public finance, 10(5), pp. 535-547, https://doi.org/10.1023/A:1026118222901.
Lim, S., Lee, S. & Kim, P. (2017) Asymmetry in the fly-paper effect of the national subsidy in Korea, Journal of the Asia Pacific Economy, 22(4), pp. 560-574, https://doi.org/10.1080/13547860.2017.1312068.
Logan, R. R. (1986) Fiscal illusion and the grantor government, Journal of Political Economy, 94(6), pp. 1304-1318, https://doi.org/10.1086/261434.
Lundqvist, H. (2015) Granting public or private consumption? Effects of grants on local public spending and income taxes, International Tax and Public Finance, 22(1), pp. 41-72, https://doi.org/10.1007/s10797-013-9279-7.
Megdal, S. B. (1987) The flypaper effect revisited: An econometric explanation, The Review of Economics and Statistics, 69(2), pp. 347-351, https://doi.org/10.2307/1927243.
Mehiriz, K. & Marceau, R. (2014) The flypaper and asymmetric effects of intergovernmental grants to Quebec municipalities, Public Budgeting & Finance, 34(1), pp. 85-102, https://doi.org/10.1111/pbaf.12026.
Melo, L. (2002) The flypaper effect under different institutional contexts: The Colombian case, Public Choice, 111(3), pp. 317-345, https://doi.org/10.1023/A:1014964318685.
Moffitt, R. A. (1984) The effects of grants-in-aid on state and local expenditures: The case of AFDC, Journal of public Economics, 23(3), pp. 279-305, https://doi.org/10.1016/0047-2727(84)90032-X.
Niskanen, W. A. (1971) Niskanen Bureaucracy and Representative Government (Chicago: Al-dine and Atherton).
Oates, W. (1979) Lump-Sum Intergovernmental Grants Have Price Effects, In: Oakland, P. & Oakland, H. (eds.) Fiscal Federalism and Grants-in-Aid (Washington, D.C.: Urban Institute), pp. 23-30.
Oates, W. E. (2008) On the evolution of fiscal federalism: Theory and institutions, National Tax Journal, 61(2), pp. 313-334, https://doi.org/10.17310/ntj.2008.2.08.
Pentury, M. A. (2011) Flypaper effects anomaly of West Papua capital public expenditure, Economic Journal of Emerging Markets, 3(3), pp. 289-297, available at: 2980-3765-1-PB.pdf. (November 12, 2021).
Program for the reform of the local self-government system in the Republic of Serbia for the period from 2021 to 2025, Official Gazette RS 73/2021.
Pevcin, P. (2011) Fly-Paper Effect in Slovenian Municipal Finances, Croat. & Comp. Pub. Admin., 11(3), pp. 707-728, available at: https://hrcak.srce.hr/file/194816 (May 30, 2022).
Randjelovic, S. & Vukanovic, S. (2021) Fiscal decentralization and local public investment policy in the Republic of Serbia, Ekonomski horizonti, 23(3), pp. 197-213, https://doi.org/10.5937/ekonhor2103207P.
Rios, V., Hortas-Rico, M. & Pascual, P. (2021) What shapes the flypaper effect? The role of the political environment in the budget process, Local Government Studies, pp. 1-28, https://doi.org/10.1080/03003930.2020.1866555.
Sagbas, S. & Saruc, N. T. (2004) Intergovernmental transfers and the flypaper effect in Turkey, Turkish Studies, 5(2), pp. 79-92, https://doi.org/10.1080/1468384042000228602.
Samal, A. (2020) An empirical analysis of asymmetry and threshold effect of intergovernmental grants in India: a panel data analysis, Global Business Review, 21(2), pp. 458-472, https://doi.org/10.1177/0972150918761083.
Saruc, N. T. & Sagbas, I. (2008) The surge impact of the flypaper, substitution and stimulation effect on local tax effort in Turkey, International research journal of finance and economics, 13, pp. 42-49, available at: Saruc-N-T-ve-Sagbas-I-2008-The-Surge-Impact-of-the-Flypaper-Substitution-and-Stimulation-Effects-on-Local-Tax-Effort-in-Turkey-International-Research-Journal-of-Finance-and-Economics-vol-13-pp-42.pdf (researchgate.net) (November 1, 2021).
Schneider, M. & Ji, B. M. (1987) The flypaper effect and competition in the local market for public goods, Public Choice, 54(1), pp. 27-39, https://www.jstor.org/stable/30024767.
Sour, L. & Giron, F. (2009) Electoral competition and the flypaper effect in Mexican local governments, No. 238 (Mexico: Centro de Investigacion y Docencia Economicas carretera Mexico-Toluca).
Statistical Office of Republic of Serbia (2019) Statistical Yearbook of the Republic of Serbia (Belgrade: Statistical Office of Republic of Serbia).
Tovmo, P. & Falch, T. (2002) The flypaper effect and political strength, Economics of Governance, 3(2), pp. 153-170, https://doi.org/10.1007/s101010100036.
Transparency Serbia (2019) Joint Project on Budget Credibility: Extended Track Final report (Belgrade: Transparency Serbia), available at: ttps://www.transparentnost.org.rs/images/dokumenti_uz_vesti/TS_Budget_credibility_-_Final_report.pdf (November 4, 2021).
Turnbull, G. K. (1998) The overspending and flypaper effects of fiscal illusion: Theory and empirical evidence, Journal of Urban Economics, 44(1), pp. 1-26, https://doi.org/10.1006/juec.1997.2056.
Winer, S. L. (1983) Some evidence on the effect of the separation of spending and taxing decisions, Journal of Political Economy, 91(1), pp. 126-140, https://doi.org/10.1086/261131.
Witterblad, M. (2007) Income heterogeneity and the flypaper effect, Umeå Economic Studies, 718, pp. 1-39, available at: www.econ.umu.se/ueslpnr/ues718.pdf (October 18, 2021).
Worthington, A. C. & Dollery, B. E. (1999) Fiscal illusion and the Australian local government grants process: How sticky is the flypaper effect?, Public Choice, 99(1), pp. 1-13, https://doi.org/10.1023/A:1018329802757.
Wyckoff, P. G. (1988) A bureaucratic theory of flypaper effects, Journal of Urban Economics, 23(1), pp. 115-129, https://doi.org/10.1016/0094-1190(88)90009-5.
Yacoub, Y. & Lestari, N. (2019) Flypaper effect in Indonesia: The case of Kalimantan, GATR Journal of Finance and Banking Review, 4(4), pp. 116-121, https://doi.org/10.35609/jfbr.2019.4.4(1).
Yasin, A. C. A. R. (2019) Does flypaper effect exist? New evidence from turkish municipalities, Sosyoekonomi, 27(39), pp. 55-68, https://doi.org/10.17233/sosyoekonomi.2019.01.03.
Yu, Y., Wang, J. & Tian, X. (2016) Identifying the Flypaper Effect in the Presence of Spatial Dependence: Evidence from Education in China's Counties, Growth and Change, 47(1), pp. 93-110, https://doi.org/10.1111/grow.12113.
Yüksel, C. (2021) The Flypaper Effect: “Reality” or “Myth”? Evidence from Turkey, Sosyoekonomi, 29(49), pp. 483-500, https://doi.org/10.17233/sosyoekonomi.2021.03.24.
It is a condition that the authors assign copyright or license the publication rights in their articles, including abstracts, to Institute for Local Self-Government Maribor. This enables us to ensure full copyright protection and to disseminate the article, and of course Journal, to the widest possible readership in print and electronic formats as appropriate. Authors retain many rights under the Institutes' right policies, which can be found at journal.lex-localis.press. Authors are themselves responsible for obtaining permission to reproduce copyright material from other sources.