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Wisconsin Local Government, State Shared Revenues and the Illusive Flypaper Effect

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  • Steven Deller
  • Craig Maher
  • Victor Lledo

Abstract

This study focuses on the impacts state shared revenues has on local government finances. Specifically we examine what is referred to in the academic literature as the "flypaper effect." Using a simple model of local fiscal behavior Bradford and Oates (1971a, 1971b) predict that aids to local governments is the equivalent to cash transfers to local constituents. Thus aids to local governments should have the same impact on local government spending as does increases in local personal income. Empirical studies, however, have found that aids to local governments has a much greater simulative affect on local spending than does a comparable increase in the income of local constituents. Private income is disproportionately spend on private consumption while aids, income received by local governments, is primarily spent on public services.
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Suggested Citation

  • Steven Deller & Craig Maher & Victor Lledo, 2002. "Wisconsin Local Government, State Shared Revenues and the Illusive Flypaper Effect," Wisconsin-Madison Agricultural and Applied Economics Staff Papers 451, Wisconsin-Madison Agricultural and Applied Economics Department.
    • Handle: RePEc:wop:wisaes:451
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    File URL: http://www.aae.wisc.edu/www/pub/sps/stpap451.pdf
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    References listed on IDEAS

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    1. Edward M. Gramlich & Harvy Galper, 1973. "State and Local Fiscal Behavior and Federal Grant Policy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 4(1), pages 15-66.
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    3. Bahl, Roy W. & Sjoquist, David L., 1990. "The State and Local Fiscal Outlook: What Have We Learned and Where Are We Headed?," National Tax Journal, National Tax Association, vol. 43(3), pages 321-42, September.
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    5. Philip J. Grossman, 1990. "The Impact of Federal and State Grants on Local Government Spending: a Test of the Fiscal Illusion Hypothesis," Public Finance Review, , vol. 18(3), pages 313-327, July.
    6. O'Brien, J. Patrick & Shieh, Yeung-Nan, 1990. "Utility Functions and Fiscal Illusion From Grants," National Tax Journal, National Tax Association;National Tax Journal, vol. 43(2), pages 201-205, June.
    7. Rubinfeld, Daniel L., 1987. "The economics of the local public sector," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 2, chapter 11, pages 571-645, Elsevier.
    8. Bahl, Roy W. & Sjoquist, David L., 1990. "The State and Local Fiscal Outlook: What Have We Learned and Where Are We Headed?," National Tax Journal, National Tax Association;National Tax Journal, vol. 43(3), pages 321-342, September.
    9. Deller, Steven C. & Walzer, Norman, 1995. "Structural Shifts in the Treatment of Intergovernmental Aid: The Case of Rural Roads," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 27(2), pages 522-535, December.
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    1. Steven C. Deller & Craig S. Maher, 2006. "A Model of Asymmetries in the Flypaper Effect," Publius: The Journal of Federalism, CSF Associates Inc., vol. 36(2), pages 213-229.

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