The purpose of this paper is to identify the causal relationship between intergovernmental transfers and fiscal effort. Empirical evidence from Peruvian municipalities supports a negative relation. The substitution effect is decreasing on the level of municipalities' expenditure and tends to...

This paper addresses two long-standing positive questions in public finance: 1) Why is the property tax, despite widespread popular complaints against its fairness, the almost exclusive tax instrument used by local governments; and 2) why do we consistently observe higher levels of governments...