Urban Local Governments and the Flypaper Effect: Evidence from Maharashtra, India

This article examines decentralization in the state of Maharashtrain India, especially with respect to the functioning of itsurban local governments. Using panel data, the article specificallyinvestigates the flypaper effect of grants from the state governmentto urban local bodies. It also addresses the asymmetry hypothesis,which states that subnational governments respond differentlyto a reduction in grants than to an increase. Our results demonstratethe presence of the flypaper effect, but evidence regardingthe asymmetric response to a reduction in grants is ambiguous.