Passing on the hot potato. Dutch municipalities under financial pressure have incentives to shift the costs of social care for older people to the central government

Abstract

In view of the impending ageing of the population, countries have been searching for ways to restructure their social care system. Reforms often involve a decentralisation of authority from central to local government. Although such a decentralisation presents the opportunity to be receptive to social demand, it could provide the incentive for local governments that bear the burden of the costs to (partly) transfer their costs back to the central level. In this paper we examine the impact of fiscal distress of municipalities on cost-shifting behaviour to the central long-term care system in the Netherlands. Using data on both the municipal level as well as the level of individual applicants for the period 2016–2019, we find that municipalities with fiscal distress in social care have higher percentages of applications for centrally funded long-term care. However, we also observe that higher percentages of applications and rejections are positively correlated suggesting that the Dutch independent need assessor has the capacity to (partly) discard cost-shifted applications.