‘Hold that Ghost’: Using Notches to Identify Manipulation of Population-Based Grants

IEB Working Paper N. 2015/39

48 Pages Posted: 22 Dec 2015

See all articles by Dirk Foremny

Dirk Foremny

University of Barcelona - Institut d'Economia de Barcelona (IEB) ; CESifo (Center for Economic Studies and Ifo Institute)

Jordi Jofre-Monseny

University of Barcelona - Department of Political Economics

Albert Sole-Olle

University of Barcelona; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: December 14, 2015

Abstract

We study local government incentives to misreport the information required to implement a formula grant. We focus specifically on population, in theory the easiest variable for the grantor to verify. We analyze the Spanish case and show how a switch from the use of census to registered population data (the latter administered by the municipalities) led to a manipulation of the population numbers used by central government to allocate grants to municipalities. As a result, registers included a proportion of ‘ghost’ citizens, that is, people who presented no trace of actually residing in the municipality. We identify the effects of grants on population over-reporting taking profit of notches in the grant scheme (i.e., one based on weighted population with the weights increasing at specific population thresholds). We document an excess mass of municipalities to the right of the notch threshold and a density hole to the left of it. There are several indications that manipulation (rather than real population responses) is the mechanism at work.

Keywords: Intergovernmental transfers, notches, bunching, enforcement

JEL Classification: H7, H26, D7

Suggested Citation

Foremny, Dirk and Jofre-Monseny, Jordi and Sole-Olle, Albert, ‘Hold that Ghost’: Using Notches to Identify Manipulation of Population-Based Grants (December 14, 2015). IEB Working Paper N. 2015/39. Available at SSRN: https://ssrn.com/abstract=2706597 or http://dx.doi.org/10.2139/ssrn.2706597

Dirk Foremny (Contact Author)

University of Barcelona - Institut d'Economia de Barcelona (IEB) ( email )

c/ John M. Keynes, 1-11
Barcelona, 08034
Spain

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Jordi Jofre-Monseny

University of Barcelona - Department of Political Economics ( email )

Av. Diagonal, 690
Barcelona, 08034
Spain

Albert Sole-Olle

University of Barcelona ( email )

Gran Via de les Corts Catalanes, 585
Barcelona, 08007
Spain

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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