Intergovernmental grants and fiscal competition
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Date
2009-01-08T12:02:12Z
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Abstract
This theoretical paper shows how a central government can induce a policy
concerning a municipal matter through a package of a policy requirement
and a grant. We find that, due to fiscal competition and the possibility for
citizens to move between municipalities, the central government can make
all municipalities adopt the policy requirement despite the grant not being
sufficiently high to make them gain from the reform. We apply this model
to a recent Swedish child-care fee reform and can explain why all Swedish
municipalities implemented the maximum child-care fee although it had a
negative impact on many municipalities’ finances.
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Keywords
child care, fiscal competition, municipality, intergovernmental grant