Alekseev, Aleksandr and Alm, James and Sadiraj, Vjollca and Sjoquist, David L. (2021) Experiments on the fly. JOURNAL OF ECONOMIC BEHAVIOR & ORGANIZATION, 186. pp. 288-305. ISSN 0167-2681, 1879-1751
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How do exogenous increases in resources to a government affect its expenditure decisions? Economic theory typically predicts that a lump-sum grant will have the same impact on government expenditures as an increase in income. However, empirical studies consistently find that government spending is stimulated far more by grants than by income; that is, grants have a "flypaper effect" because the money "sticks where it hits". We conduct a laboratory experiment that controls for the most important factors that have been sug-gested in explaining the existence of the flypaper effect. Our experimental design crosses four transfer delivery methods with three voting frameworks. We examine three payoff-equivalent transfer delivery methods, all relative to a fourth baseline treatment with no transfer: an increase in income, a subsidy (repayment) for expenditures on the public good, and a lump-sum grant. Our two alternative voting frameworks are voting over levels of expenditures and voting over changes with information on public good externalities, each relative to a third baseline treatment where voting is over changes from a default (refer-ence) level of expenditures. We find robust evidence of a flypaper effect: both the subsidy and the lump-sum grant increase expenditures more than does an equivalent increase in income. Our results are largely consistent with, and explained by, theoretical models that rely upon behavioral economics. (c) 2021 Elsevier B.V. All rights reserved.
| Item Type: | Article |
|---|---|
| Uncontrolled Keywords: | PUBLIC GOOD PROVISION; SOCIAL PREFERENCES; GRANTS; STATE; COOPERATION; AID; Laboratory experiment; Intergovernmental grants; Flypaper effect; Reference dependence; Social preferences; Public goods; Incremental budgeting |
| Subjects: | 300 Social sciences > 330 Economics |
| Divisions: | Business, Economics and Information Systems > Institut für Volkswirtschaftslehre und Ökonometrie > Lehrstuhl für Empirische Wirtschaftsforschung - Prof. Lea Cassar |
| Depositing User: | Dr. Gernot Deinzer |
| Date Deposited: | 13 Sep 2022 04:30 |
| Last Modified: | 13 Sep 2022 04:30 |
| URI: | https://pred.uni-regensburg.de/id/eprint/47659 |
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