AN INSTITUTIONAL THEORY OF THE EFFECT OF INTERGOVERNMENTAL GRANTS

Abstract
Empirical work on the effects of flat grants on spending on local public goods has generated results that are inconsistent with the standard theory. We provide a framework that takes into account the institutional structure of some common local expenditure determination processes (e.g., referenda). Our approach provides testable hypotheses quite different from those of the standard theory and may be useful as a basis for further empirical analysis.

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