Stimulating Local Public Employment: Do General Grants Work?

37 Pages Posted: 13 Sep 2010

See all articles by Heléne Lundqvist

Heléne Lundqvist

Department of Economics, Stockholm University

Matz Dahlberg

Uppsala University

Eva Moerk

IFAU - Institute for Labour Market Policy Evaluation; Uppsala University - Department of Economics; IZA Institute of Labor Economics

Abstract

The effectiveness of public funds in increasing public employment has long been a question on public and labor economists’ minds. In most federal countries local governments employ large fractions of the working population, meaning that a tool for stimulating local public employment can substantially affect the overall unemployment level. This paper asks whether general grants to lower-level governments have the potential of doing so. Applying the regression kink design to the Swedish grant system, we are able to estimate causal effects of intergovernmental grants on personnel in different local government sectors. Our robust conclusion is that personnel in the central administration increased substantially after a marginal increase in grants, but that such an effect was lacking both for total personnel and personnel in child care, schools, elderly care, social welfare and in technical services. We suggest several potential reasons for these results, such as heterogeneous treatment effects and bureaucratic influence in the local decision-making process.

Keywords: fiscal federalism, intergovernmental grants, public employment, regression kink design, instrumental variables

JEL Classification: C33, H11, H70, J45

Suggested Citation

Lundqvist, Heléne and Dahlberg, Matz and Moerk, Eva, Stimulating Local Public Employment: Do General Grants Work?. IZA Discussion Paper No. 5177, Available at SSRN: https://ssrn.com/abstract=1675688 or http://dx.doi.org/10.2139/ssrn.1675688

Heléne Lundqvist (Contact Author)

Department of Economics, Stockholm University ( email )

Universitetsvägen 10
Stockholm, Stockholm SE-106 91
Sweden

Matz Dahlberg

Uppsala University ( email )

Box 513
Uppsala, 751 20
Sweden

Eva Moerk

IFAU - Institute for Labour Market Policy Evaluation ( email )

Box 513
751 20 Uppsala
Sweden

Uppsala University - Department of Economics ( email )

Box 513
SE-75120 Uppsala
Sweden

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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