Matching Grants and Ricardian Equivalence

U of London Queen Mary Economics Working Paper No. 440

17 Pages Posted: 19 Oct 2001

See all articles by Charles Figuieres

Charles Figuieres

Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE); Université de Polynésie Française

Jean Hindriks

University of London - School of Economics and Finance

Date Written: October 2001

Abstract

This paper questions the effectiveness of matching grants to correct for interjurisdictional spillovers in the light of Bernheim general neutrality result. Indeed this result suggests that the usual argument that matching grants are needed to internalize the externality arising from the existence of interjuridictional spillovers is an artifact of the assumption that jurisdictions neglect the impact that their decisions have on the federal budget. Relaxing this assumption and using a classical model where the arbitrage resulting from labor mobility implies that redistribution has the properties of a public good, we find that matching grants are relevant although much less effective. We also find that optimal matching rates are independent of the jurisdictions' choice of policy variable contrarily to the case where jurisdictions ignore the impact of their decisions on the federal budget.

Keywords: Fiscal federalism, Ricardian equivalence, matching grants

JEL Classification: H23, H70

Suggested Citation

Figuieres, Charles and Hindriks, Jean, Matching Grants and Ricardian Equivalence (October 2001). U of London Queen Mary Economics Working Paper No. 440, Available at SSRN: https://ssrn.com/abstract=287859 or http://dx.doi.org/10.2139/ssrn.287859

Charles Figuieres

Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE) ( email )

34 Voie du Roman Pays
1348 Louvain-la-Neuve, 1348
Belgium

Université de Polynésie Française

Jean Hindriks (Contact Author)

University of London - School of Economics and Finance ( email )

Mile End Road
London, E1 4NS
United Kingdom
+44 20 7882 7807 (Phone)
+44 20 8983 3580 (Fax)

HOME PAGE: http://www.dc.eclipse.co.uk/hindriks.html

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
46
Abstract Views
653
PlumX Metrics