London School of Economics EOPP: Economic Organisation and Public Policy Programme LSE
EOPP: Economic Organisation and Public Policy Programme

Abstract for:

The Flypaper Effect Revisited

Fernando Aragon, January 2009
Paper No' EOPP 004: | Full paper (pdf)
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Keywords: flypaper effect; intergovernmental transfers, public finance, fiscal decentralization

JEL Classification: H71; H77

Is hard copy/paper copy available? YES - Paper Copy Still In Print.
This Paper is published under the following series: Economic Organisation and Public Policy Discussion Papers
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Abstract:

This paper argues that there is nothing anomalous about the flypaper effect. I develop a simple median voter model of government spending with costly tax collection that predicts the flypaper effect and provide a quantifiable measure of its magnitude. Using the model insights and previous estimates, I show that a tax rate between 8% to 16% would account for the flypaper effect observed in U.S. subnational governments.