The impact of intergovernmental fiscal tools on local service decision: the Nebraska case for water and wastewater systems

Abstract

ABSTRACT This study examines the impact of federal funding on local spending for water and wastewater infrastructure (hereafter ‘W&WI’) in Nebraska. The recent deterioration of W&WI creates potential risks to citizens’ lives. The federal government operates several programmes to assist with W&WI improvements. However, funding is limited, while there are substantial demands for funding. To understand the fiscal impact of intergovernmental aid on local expenditures, this study utilised panel data from 2010 to 2018 for 129 Nebraska municipalities with population over 800 that have water and wastewater systems. This study finds some evidence of the stimulating (‘flypaper’) effect of federal aid on local expenditures. However, in disaggregated models, the aid has crowd-out effects on specific types of spending (e.g. operating expenses). The findings can contribute to policymakers’ understanding of the impact of federal funding programmes and suggest directions for improvement of these tools.