- مبلغ: ۸۶,۰۰۰ تومان
- مبلغ: ۹۱,۰۰۰ تومان
The existing empirical literature on the impact of vertical grants on local public-sector efficiency yields mixed results. Given the fact that vertical financial equalization systems often reduce differences in fiscal capacity, we argue that empirical studies based on cross-sectional data may yield a positive relationship between grants and efficiency of public service production even when the underlying causal effect is not. We provide a simple illustrative theoretical model to show the logic of our argument and illustrate its relevance by an empirical case study for the German state of Saxony-Anhalt. We show that our main argument of an inference-disturbing effect applies to those existing studies that are more optimistic about the impact of vertical grants. Finally, we argue that it may disturb the inference drawn from studies in a number of other countries where vertical grants— intended or not—concentrate in fiscally weak municipalities.
Our article contributes to the literature on vertical grants and their impact on public-sector efficiency. Its main argument is the following: cross-sectional studies on this issue are in danger of reaching false conclusions if they do not account for the inference-disturbing effect caused by the fact that vertical grants are often part of a fiscal equalization scheme that favors fiscally weak municipalities. Specifically, they may find a seemingly efficiencyincreasing effect of vertical grants even though the underlying causal effect is negative or neutral.
We illustrate the main argument using a stylized theoretical model before we show its empirical relevance. First, we show that all existing studies that contain adequate controls for the impact of own resources and fiscal equalization arrive at a negative effect, while some of those that do not contain adequate controls reach a more positive conclusion. Second, we provide a case study for the German state of Saxony-Anhalt. Those regressions that do not account for these factors suggest that grants increase efficiency. Once we control for municipalities’ fiscal capacity, however, our results hint at a neutral or even negative impact of vertical grants on efficiency. Thus, studies that use data from countries with grants that favor fiscally weak municipalities but do not control for own resources are in danger of arriving at false conclusions.