We investigate how lump-sum equalization transfers affect expenditures and taxes in the municipalities of the largest … German state North Rhine-Westphalia. In general, those general-purpose transfers cannot be treated as exogenous variables … instrumental variables. Findings suggest the existence of the "flypaper effect" - municipalities use transfers to increase …

We investigate the effect of general-purpose transfers on different expenditure categories and tax rates in the … suggest the existence of the "flypaper effect" - municipalities use transfers to increase expenditures but do not reduce taxes …