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Authors: Barbaro, Salvatore
Title: Price-shifting fungibility
Online publication date: 25-Feb-2022
Language: english
Abstract: Unconditional intergovernmental grants are popular with economists but increasingly rarely observed in practice. Conversely, earmarking grants became a common form of the centres’ support to states in federalist countries, though they are seriously flawed by welfare loss induced by the intended reallocation of states’ provision of goods and services. Conditional grants bring states’ governments a dilemma: intergovernmental grants increase states’ revenues and enhance welfare, but the revenue gain is paid with amendments on the expenditure side, which harms welfare. We introduce the notion of price-shifting fungibility. It describes the effect of grant-receiving states minimizing the distortionary impact of conditional grants by lowering the prices or quality of the targeted good. By reducing the expenditure for the subsidized good, states create financial leeway to promote goods and services other than the targeted interest. By doing so, they can compensate for the welfare loss caused by conditional grants. We provide a simple theoretical model and some empirical evidence.
DDC: 320 Politik
320 Political science
330 Wirtschaft
330 Economics
Institution: Johannes Gutenberg-Universität Mainz
Department: FB 03 Rechts- und Wirtschaftswissenschaften
Place: Mainz
Version: Published version
Publication type: Zeitschriftenaufsatz
Document type specification: Scientific article
License: CC BY
Information on rights of use:
Journal: Regional studies, regional science
Pages or article number: 93
Publisher: Taylor & Francis
Publisher place: London
Issue date: 2022
ISSN: 2168-1376
Publisher DOI: 10.1080/21681376.2022.2030789
Appears in collections:JGU-Publikationen

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