Economics · Fiscal Federalism
The 'flypaper effect' in fiscal federalism refers to the empirical finding that:
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- 1Revenue sharing among federal units leads to complete fiscal equalisation across regions
- 2Local governments tend to spend proportionally less when they receive block grants versus categorical grants
- 3Intergovernmental grants stimulate local public spending by far more than an equivalent increase in community private income✓
- 4Central government grants to local bodies are fully offset by local tax reductions
Correct answer
Intergovernmental grants stimulate local public spending by far more than an equivalent increase in community private income
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