In:
Public Finance Review, SAGE Publications, Vol. 47, No. 3 ( 2019-05), p. 558-584
Abstract:
The existing empirical literature on the impact of vertical grants on local public-sector efficiency yields mixed results. Given the fact that vertical financial equalization systems often reduce differences in fiscal capacity, we argue that empirical studies based on cross-sectional data may yield a positive relationship between grants and efficiency of public service production even when the underlying causal effect is not. We provide a simple illustrative theoretical model to show the logic of our argument and illustrate its relevance by an empirical case study for the German state of Saxony-Anhalt. We show that our main argument of an inference-disturbing effect applies to those existing studies that are more optimistic about the impact of vertical grants. Finally, we argue that it may disturb the inference drawn from studies in a number of other countries where vertical grants—intended or not—concentrate in fiscally weak municipalities.
Type of Medium:
Online Resource
ISSN:
1091-1421
,
1552-7530
DOI:
10.1177/1091142117725393
Language:
English
Publisher:
SAGE Publications
Publication Date:
2019
detail.hit.zdb_id:
2070401-X
detail.hit.zdb_id:
1358400-5
