| Abstract: | In this applied research study we examine the changing fiscalrelationship between state and local governments. Our researchquestion is simple: Do local governments treat state aid duringperiods of stability and instability in a systematic manner?Using data on Wisconsin's unconditional shared revenues programfrom 1990 to 2000, we find evidence of a flypaper effect andthat the relationship tends to be asymmetrical. The manner inwhich local governments treat intergovernmental aid is differentbetween periods of increases and decreases in aid. Specifically,using a model that allows for the identification of structureshifts we find evidence of fiscal replacement. In addition,we find that changes in aid impact types of spending differently.When aid is reduced, policymakers appear to be less inclinedto cut police and fire services than they are to cut servicessuch as parks and recreation. |
