A Bureaucratic Theory of Flypaper Effects

One well-documented pattern in local public finance is that, in comparison with what is spent out of residents’ private income, a disproportionate amount of the lump-sum aid received from higher levels of government is used to increase expenditures rather than reduce local taxes. This paper shows how a bureaucratic model of the type suggested by Niskanen (1971) can be used to explain this behavior. A test of the model, using 115 small city governments in Michigan, finds that the bureaucratic model explains capital expenditures well, while operating expenditures appear to be better explained by the standard median voter model.