The Flypaper Effect is not a Puzzle

Preprint
Publisher Website
Google Scholar
  • 1 January 2015
    • preprint
      • Published in RePEc
Abstract
This note provides, in the context of an example, a new theoretical explanation of the flypaper effect by incorporating dynamic stochastic features into the conventional framework of local public finances. Under these circumstances, the flypaper effect is not an anomaly, but a natural optimizing behavior within the “traditional theory of grants-in-aid”. When shocks to intergovernmental transfers are more permanent than those affecting private income, an increase in intergovernmental transfers shifts public goods provision upward much more than an equivalent change in private income.
All Related Versions

This publication has 0 references indexed in Scilit: