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Local Spending, Transfers, and Costly Tax Collection

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  • Fernando M. Aragon

Abstract

This paper studies the effect of relatively costly local taxation on the fiscal response of local governments to intergovernmental transfers. Using a panel dataset of Peruvian municipalities, I find robust evidence that the central government’s grants have a greater stimulatory effect in municipalities facing higher local tax collection costs. The results are consistent with the hypothesis that relatively costly local taxation may partially explain the flypaper effect.

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  • Fernando M. Aragon, 2013. "Local Spending, Transfers, and Costly Tax Collection," National Tax Journal, National Tax Association;National Tax Journal, vol. 66(2), pages 343-370, June.
    • Handle: RePEc:ntj:journl:v:66:y:2013:i:2:p:343-370
    DOI: 10.17310/ntj.2013.2.03
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    Cited by:

    1. Bev Dahlby & Ergete Ferede, 2016. "The stimulative effects of intergovernmental grants and the marginal cost of public funds," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(1), pages 114-139, February.
    2. Manuel E. Lago & Santiago Lago-Peñas & Jorge Martinez-Vazquez, 2022. "On the effects of intergovernmental grants: a survey," Working Papers. Collection A: Public economics, governance and decentralization 2204, Universidade de Vigo, GEN - Governance and Economics research Network.
    3. Manuel E. Lago & Santiago Lago-Peñas & Jorge Martinez-Vazquez, 2024. "On the effects of intergovernmental grants: a survey," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 31(3), pages 856-908, June.
    4. Vicente Rios & Miriam Hortas-Rico & Pedro Pascual, 2022. "What shapes the flypaper effect? The role of the political environment in the budget process," Local Government Studies, Taylor & Francis Journals, vol. 48(5), pages 793-820, September.
    5. Alvaro Morales & Prakarsh Singh, 2016. "“Face the bullet, spare the rod?” Evidence from the aftermath of the Shining Path Insurgency," HiCN Working Papers 191 updated, Households in Conflict Network.
    6. Makarin, Alexey & Piqué, Ricardo & Aragón, Fernando, 2020. "National or sub-national parties: Does party geographic scope matter?," Journal of Development Economics, Elsevier, vol. 146(C).
    7. Alvaro Morales & Prakarsh Singh, 2014. "The Effect of Civil Conflict on Child Abuse: Evidence from Peru," HiCN Working Papers 187, Households in Conflict Network.
    8. Kaur, Amandeep & Mohanty, Ranjan Kumar & Chakraborty, Lekha & Rangan, Divy, 2021. "Ecological Fiscal Transfers and State-level Budgetary Spending in India: Analysing The Flypaper Effects in India," Working Papers 21/332, National Institute of Public Finance and Policy.
    9. Oyarzo, Mauricio & Paredes, Dusan, 2019. "Revisiting the link between resource windfalls and subnational crowding out for local mining economies in Chile," Resources Policy, Elsevier, vol. 64(C).
    10. Kaur, Amandeep & Mohanty, Ranjan & Chakraborty, Lekha S & Rangan, Divy, 2021. "Ecological Fiscal Transfers and State-level Budgetary Spending in India: Analysing The Flypaper Effects," MPRA Paper 111947, University Library of Munich, Germany.
    11. Prakarsh Singh & Alvaro Morales, 2015. "The Effect of Civil Conflict on Child Abuse: Evidence from Peru," NCID Working Papers 04/2015, Navarra Center for International Development, University of Navarra.
    12. Baja Daza, Gover & Villarroel Böhrt, Sergio & Zavaleta Castellón, David, 2012. "Diseño institucional e incentivos implicitos en la descentralización Boliviana (1994-2008) [Institutional design and implicit incentives in Bolivia's decentralization model (1994-2008)]," MPRA Paper 48598, University Library of Munich, Germany.

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    More about this item

    JEL classification:

    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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