On the Flypaper Theory of Local Government Response to Grants-in-Aid

Abstract

Positive models of local government response to grants-in-aid must be judged on their ability to give predictions which are supported by empirical findings. In this respect, one of the most widely used models of local response has recently been criticised because of the apparent lack of correspondence between one of its predictions and the empirical facts. This failure on the part of what is referred to in this paper as the conventional theory has led to the development of the flypaper theory of local fiscal response. It is suggested in this paper that the flypaper theory also gives a prediction which is not supported by the facts and thus cannot be seen as a suitable replacement for the conventional theory. It is further suggested that it is by no means clear that the criticism of the conventional theory which led to the attempt to replace it is well founded.