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(Non)equivalence in a Federalism: Dual Tax Shares, Flypaper Effects and Leviathan

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  • Aronson, J Richard
  • Munley, Vincent G

Abstract

Among the best-known theorems of fiscal federalism is the presumed allocative and distributive equivalence between a lump-sum grant to a collectivity and a set of lump sum grants to the members of a collectivity. Interestingly, the simple elegance of the theorem is at odds with observed behavior. Grants to governments produce greater public spending than does tax reduction. Explanation of this 'flypaper effect' range from misspecified econometric modeling to presumed behavior based on fiscal illusion. In this paper we show that theoretical equivalence exists in a model that recognizes only one tax share, the citizen voter's local tax share. When the model is expanded to include voters' federal tax shares as well as local taxes, non-equivalence and the flypaper effect become the rule, not the exception. Copyright 1996 by Kluwer Academic Publishers

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  • Aronson, J Richard & Munley, Vincent G, 1996. "(Non)equivalence in a Federalism: Dual Tax Shares, Flypaper Effects and Leviathan," Public Choice, Springer, vol. 89(1-2), pages 53-62, October.
    • Handle: RePEc:kap:pubcho:v:89:y:1996:i:1-2:p:53-62
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    Cited by:

    1. Kakamu, Kazuhiko & Yunoue, Hideo & Kuramoto, Takashi, 2014. "Spatial patterns of flypaper effects for local expenditure by policy objective in Japan: A Bayesian approach," Economic Modelling, Elsevier, vol. 37(C), pages 500-506.

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