IDEAS home Printed from https://ideas.repec.org/a/eee/ecanpo/v40y2010i1p21-63.html
   My bibliography  Save this article

The Impact of Intergovernmental Grants on Cost Efficiency: Theory and Evidence from German Municipalities

Author

Listed:
  • Alexander Kalb

    (Centre for European Economic Research (ZEW) and University of Heidelberg, L 7, 1 68161 Mannheim, Germany)

Abstract

In this paper we use a simple bureaucracy model of fiscal illusion to analyse the impact of intergovernmental grants on the cost efficiency of local jurisdictions. We find that a higher degree of redistribution within a system of fiscal equalisation or an increase in the amount of grants received by a local jurisdiction leads to an extension of organisational slack or X-inefficiency in that jurisdiction. This theoretical prediction is tested by conducting an empirical analysis using a broad panel of German municipalities. The results of the empirical analysis are consistent with the theoretical findings and therefore support the existence of a negative incentive effect of intergovernmental grants on local authorities' cost efficiency.

Suggested Citation

  • Alexander Kalb, 2010. "The Impact of Intergovernmental Grants on Cost Efficiency: Theory and Evidence from German Municipalities," Economic Analysis and Policy, Elsevier, vol. 40(1), pages 21-63, March.
    • Handle: RePEc:eee:ecanpo:v40:y:2010:i:1:p:21-63
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S031359261050002X
    File Function: full text
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    Cost efficiency; Fiscal equalisation; Intergovernmental grants; Bureaucracy; Stochastic frontier analysis; German municipalities;
    All these keywords.

    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecanpo:v40:y:2010:i:1:p:21-63. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.journals.elsevier.com/economic-analysis-and-policy .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.