Template-Type: ReDIF-Paper 1.0
Author-Name: John Roemer
Author-Name-First: John
Author-Name-Last: Roemer
Author-Name: Holly Liu
Author-Name-First: Holly
Author-Name-Last: Liu
Author-Name: Jeffrey Williams
Author-Name-First: Jeffrey
Author-Name-Last: Williams
Author-Name: Selva Demiralp
Author-Name-First: Selva
Author-Name-Last: Demiralp
Author-Workplace-Name: Department of Economics, University of California Davis
Title: The 'Flypaper Effect' is not an anomaly
Abstract: An in-kind subsidy is equivalent, both theoretically and empirically, to an increase of income for an individual consumer. But the equivalence does not empirically carry over to in-kind grants by a central government to a local one: this has been seen as an anomaly and dubbed the â??flypaper effect.â??
 We argue that the â??anomalyâ?? label is incorrect: the nonequivalence of increases in grants and community income is predicted, almost everywhere, by models that understand collective decision as the outcome of electoral competition among political parties.  In addition, we compute politico-economic equilibria for a model with two independent tax parameters and obtain numerical values that agree with the existing empirical literature.
Length: 26
File-URL: https://repec.dss.ucdavis.edu/files/fsBeWw8pBbyATBaNDBLcvDZ6/00-4.pdf
File-Format: application/pdf
Number: 306
Classification-JEL: D72, H41, H71, H77
KeyWords: 
Creation-Date: 20030115
Handle: RePEc:cda:wpaper:306