The Flypaper and Asymmetric Effects of Intergovernmental Grants to Quebec Municipalities

Abstract

This study uses a panel fixed effect model to analyze the impact of intergovernmental grants on municipal spending in Quebec. The data from the 1,084 municipalities covering the period 2001–2007 are used for this purpose. The study shows that grants have flypaper and asymmetric effects and that the extent of these effects is sensitive to the type of grants and municipal expenditures. Furthermore, it suggests that conditional grants seem to be a more effective tool for changing the composition of the supply of municipal services whereas unconditional grants are more suitable to stimulate the level of provision of these services.