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Conditional grants to independent regional governments: The trade-off between incentives and wasteful grant-seeking

Author

Listed:
  • Ivo Bischoff

    (University of Kassel)

  • Frédéric Blaeschke

    (University of Kassel)

Abstract

The paper addresses the welfare implications of conditional grants in the presence of inefficiencies in regional production. While conditional grants may set incentives for regions to reduce inefficiencies, resources are wasted in the process of grant-seeking. We provide a theoretical model to assess the net effect on welfare. A game-theoretic context is developed to derive the optimal grant-distribution scheme. Depending on the characteristics of the collective good and of the regional government, the optimal ratio of conditional to block grants and the optimal number of recipients vary. The impact of different factors on the optimal grant-distribution scheme is derived.

Suggested Citation

  • Ivo Bischoff & Frédéric Blaeschke, 2010. "Conditional grants to independent regional governments: The trade-off between incentives and wasteful grant-seeking," MAGKS Papers on Economics 201030, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    • Handle: RePEc:mar:magkse:201030
    as

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    References listed on IDEAS

    as
    1. Cornelius Bähr, 2008. "How does Sub‐National Autonomy Affect the Effectiveness of Structural Funds?," Kyklos, Wiley Blackwell, vol. 61(1), pages 3-18, February.
    2. Kalb, Alexander, 2008. "The Impact of Intergovernmental Grants on Cost Efficiency: Theory and Evidence from German Municipalities," ZEW Discussion Papers 08-051, ZEW - Leibniz Centre for European Economic Research.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    conditional grants; inefficiencies; rent-seeking; fiscal federalism; opportunistic government;
    All these keywords.

    JEL classification:

    • D7 - Microeconomics - - Analysis of Collective Decision-Making
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government

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