The flypaper effect and competition in the local market for public goods

In this paper, we explore how the ability of bureaucrats to extract resources from their community may be limited by competition in the local market for public goods. Specifically, we examine intergovernmental aid as a resource bureaucrats seek to control. Intergovernmental aid has been found to be more stimulative of local government expenditures than predicted by neo-classical economic theory. In this research, the ‘flypaper effect’ is used as an indicator of the ability of bureaucrats to control local resources in excess of local demand and preferences. We empirically relate variation in the flypaper effect to the extent of competition in the local market for public goods. Competition does not consistently limit the flypaper effect. The implications of this finding for theories of competition in the local market for public goods are then discussed.