| Abstract: | Using data for Wisconsin cities and villages the effects of grants in aid from state government on 10 categories of municipal expenditures are examined. We build on the traditional grants in aid public finance literature by looking for evidence of the flypaper effect. By focusing on the Wisconsin state shared revenues program, a pure grant of considerable size for many Wisconsin municipalities, we offer a clean test of the flypaper effect. We find a positive flypaper effect on 8 of the 10 categorical expenditures. We also find the impact of unconditional grants on categorical expenditures is stronger on nonessential “luxury” goods (e.g., parks and recreation, culture, and educational services) than on essential “normal” municipal goods (e.g., police and fire protection). |
