Flypaper Effect in the Republic of Serbia
DOI:
https://doi.org/10.4335/20.4.931-957(2022)Keywords:
flypaper effect, unconditional transfers, local self-governments, fiscal consolidation, panel regression analysisAbstract
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.
References
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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.
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2022-11-02
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