Fiscal capacity and the flypaper effect

Дата публикации: 21-07-2026 00:00:00

This paper unifies public choice and public finance accounts of the flypaper effect under fiscal capacity as a common moderator, thereby organizing previously separate explanations into a single comparative-static framework. Using panel data on Chilean municipalities (2001–2021), we find that the flypaper response declines monotonically with fiscal capacity, from a transfer elasticity of 0.92 in the lowest-capacity quintile to statistical indistinguishability from zero in the highest; own-revenue elasticities show the opposite pattern. The gradient is robust to controls for municipality size and across alternative specifications. We read it as a regime statistic of a permanent institutional configuration with centrally fixed tax rates and formula-based intergovernmental grants, not as a treatment effect. The framework integrates the marginal cost of public funds from public finance with electoral accountability and soft budget constraints from public choice, each yielding the same prediction of monotonic decline. Uniform allocation rules amplify rather than neutralize the asymmetries they were designed to address, with implications for the design of intergovernmental transfer systems in developing countries.

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