Expenditure Effects of Intergovernmental Transfers – the Case of Slovenia

Abstract

The purpose of this paper is to provide the evidence on the "stickiness" of intergovernmental transfers. Namely, intergovernmental transfers have fiscal (expenditure) effects as they stimulate provision of local government goods and services, and this expenditure effect should be larger for the matching grants and smaller for lump-sum transfers. It is also expected that this effect would be larger than the equivalent increase in local income, prediction labelled as fly-paper effect when related to lump-sum transfers. Empirical research for Slovenian municipalities provides the evidence that the magnitude of expenditure effects of various categories of intergovernmental transfers is substantially lower compared to international findings, and in some cases the effect is even smaller than the effect of per-capita income.