A minimalist model of federal grants and flypaper effects

Abstract

This paper shows that ‘flypaper effects’ can be observed for unconditional federal grants, even in the absence of agenda-setters, voting intransitivities, informational asymmetries, etc. In a simple representation of a regime of federal, general revenue grants, median citizen-voters are decisive over the levels of grants, taxation and spending. By assumption, federal grants received equal federal taxes paid in each recipient locallity. The size of the federal grant varies endogenously with demand conditions and the efficiency of tax technologies. The apparent flypaper effects, positive or negative, vary with the source of the change in grants.