A comprehensive approach to intergovernmental grants’ tactical allocation. Theory and estimation guidelines

Political economy literature highlights the tactical use of intergovernmental grants for electoral purposes; however, it provides different mechanisms and explanations behind these patterns. In this paper, we propose a model that includes 3 branches of the literature in order to provide a comprehensive explanation behind the tactical allocation by central governments. We identify 3 key parameters that shape the tactical allocation of grants: the electoral rule, the relative importance of the objective of the central government with respect to the local government, and the extent to which citizens attribute local expenditure to the direct action of the local government vs the central government (local political appropriability). In addition, our model also provides a guideline for designing and interpreting empirical results on the tactical allocation of grants distribution.

TENDENCIES OF URBAN DISTRICTS’ BUDGETS REGULATION

The view of practice of urban districts’ budgets regulation is presented. We have analyzed structure and dynamic of intergovernmental grants provided to budgets of urban districts. On the base of analyses results we have revealed common trends and regional differences and formulated some recommendation for budget regulation improvement

When Does Money Stick in Education? Evidence from A Kinked Grant Rule

We study the effects of intergovernmental grants on school spending within the Finnish system of high school education funding. Using a kinked grant rule, the system allocates lump-sum intergovernmental grants to local high school education providers. Utilizing the quasi-experimental variation in grants given by the rule, we identify the effects of the grants on municipal high school education expenditures. Our results indicate that the grants stimulate spending, while local tax rates or revenues do not seem to be responsive to the grants, suggesting the presence of a typical flypaper effect. However, we also consider the possibility that the grant responses might be heterogeneous among municipalities. Based on our heterogeneity results, the grant response is positively associated with the share of the high school age population, and a higher share of elderly persons is related to a lower propensity to spend on education out of grant funding. This result is in line with the idea of intergenerational conflict in education spending preferences presented in education finance literature.