Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/236400 
Year of Publication: 
2021
Series/Report no.: 
IZA Discussion Papers No. 14369
Publisher: 
Institute of Labor Economics (IZA), Bonn
Abstract: 
We study the fiscal and tax response to intergovernmental grants, exploiting quasi-experimental variation within Germany's fiscal equalization scheme triggered by Census revisions of official population counts. Municipal budgets do not adjust instantly. Instead, spending and investments adapt within five years to revenue gains, while adjustment to revenue losses is more rapid. Yet, the long-run response is symmetric. The tax response is particularly slow, stretching over more than a decade. Well-known empirical "anomalies" in public finance such as the flypaper effect are thus primarily a short-run phenomenon, while long-run fiscal behavior appears more consistent with standard theories of fiscal federalism.
Subjects: 
intergovernmental grants
fiscal transfers
government spending
local taxation
Census Shock
flypaper effect
JEL: 
H71
H72
H77
E62
Document Type: 
Working Paper

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