Abstract
Motivated by the lack of success of previous studies trying to estimate the impact of the European Cohesion Policy, this paper brings an unexplored issue to light: transfers that are intended to finance public investment in key areas for growth might be crowded-out by subsidized governments to alternative uses. In fact, using annual data from fifteen member countries (1993–2005), we conclude that public investment in the member countries makes up around 60% of the increase in EU funds. The limited role of the European Commission in the allocation of the Funds could partially explain this result.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Agenor, P. R. (2007). Fiscal policy and endogenous growth with public infrastructures (Discussion Paper Series, 59). Centre for Growth and Business Cycle Research.
Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. Review of Economic Studies, 58, 227–297.
Bahl, R., & Duncombe, W. (1988). State and local government finance: was there a structural break in the Reagan years? Growth and Change, 19(4), 30–48.
Bahl, R., & Sjoquist, D. L. (1990). The state and local fiscal outlook: what have we learned and where are we headed? National Tax Journal, 43(3), 321–342.
Bailey, S. J., & Connolly, S. (1998). The flypaper effect: identifying areas for further research. Public Choice, 95, 335–336.
Beck, N. (2001). Time-series–cross-section data: what have we learned in the past few years? Annual Review of Political Science, 4, 271–293.
Becker, E. (1996). The illusion of fiscal illusion: unsticking the flypaper effect. Public Choice, 86, 85–102.
Besley, T., & Case, A. (2000). Unnatural experiments? Estimating the incidence of endogenous policies. The Economic Journal, 110, 467.
Bhargava, A., Franzini, L., & Narendrathan, W. (1982). Serial correlation and the fixed-effects models. Review of Economic Studies, 49, 533–549.
Bose, N., Haque, M. E., & Osborn, D. R. (2003). Public expenditure and economic growth: a disaggregated analysis for developing countries (Discussion Paper Series, 30). Centre for Growth and Business Cycle Research University of Manchester.
Bradford, D. F., & Oates, W. E. (1971a). Towards a predictive theory of intergovernmental grants. The American Economic Review, 61(2).
Bradford, D. F., & Oates, W. E. (1971b). The analysis of revenue sharing in a new approach to collective fiscal decisions. The Quarterly Journal of Economics, 85(3), 416–439.
Case, A. C., Rosen, H. S., & Hines, J. R. (1993). Budget spillovers and fiscal policy interdependence: evidence from the States. Journal of Public Economics, 53, 285–307.
Chubb, J. E. (1985). The political economy of federalism. American Political Science Review, 79.
Dall ’Erba, S., & Le Gallo, J. (2003). Regional convergence and the impact of European Structural Funds over 1989–1999: an spatial econometrics analysis (Discussion paper). Regional Economics Applications Laboratory (REAL), University of Illinois.
De Haan, J., Sturm, J. E., & Sikken, B. J. (1996). Government capital formation: explaining the decline. Weltwirtschaftliches Archiv, 132(1).
De La Fuente, A. (2002). The effect of Structural Fund spending on the Spanish regions: an assessment of the 1994–99 Objective 1 CSF (CEPR Discussion Paper, 3673).
Deller, S. C., & Walzer, N. (1995). Structural shifts in the treatment of intergovernmental aid: the case of rural roads. Journal of Agricultural and Applied Economics, 27(2), 1–14.
Djajic, S., & Maximilians, L. (1987). Government spending and the optimal rates of consumption and capital accumulation. Canadian Journal of Economics, 20(3), 544–554.
Dougan, W. R., & Kenyon, D. A. (1988). Pressure groups and public expenditure: the flypaper effect reconsidered. Economic Inquiry, 26.
Feldstein, M. S. (1975). Wealth neutrality and local choice in public education. The American Economic Review, 65.
Fisher, R. C. (1982). Income and grant effects on local expenditure: the flypaper effect and other difficulties. Journal of Urban Economics, 12.
Ganelly, G., & Tervala, J. (2007). Public infrastructures, public consumption, and welfare in a new-open-economy-macro model (IMF Working Paper, 07/67).
Gonzalez-Alegre, J. (2008). The distribution of public expenditure in Europe. PhD dissertation. Florence: European University Institute.
Gordon, N. (2004). Do federal grants boost school spending? Evidence from Title I. Journal of Public Economics, 88, 9–10.
Gramkhar, S., & Oates, W. (1996). Asymmetries in the response to increases and decreases in intergovernmental grants: some empirical findings. National Tax Journal, 49(4), 501–512.
Gramlich, E., & Galper, H. (1973). State and local fiscal behavior and federal grant policy. Brookings Papers on Economic Activity, 1, 15–66.
Hamilton, B. W. (1983). The flypaper effect and other anomalies. Journal of Public Economics, 22.
Hines, J. R., & Thaler, R. H. (1995). Anomalies: the flypaper effect. The Journal of Economic Perspectives, 9(4).
King, D. (1984). Fiscal tiers: the economics of multilevel government. London: George Allen and Unwin.
Kneller, R., Bleaney, M. F., & Gemmell, N. (1999). Fiscal policy and growth: evidence from OECD countries. Journal of Public Economics, 74, 171–190.
Knight, B. (2002). Endogenous federal grants and crowd-out of state government spending: theory and evidence from the Federal Highway Aid Program. The American Economic Review, 92(1).
Mehrotra, A., & Valila, T. (2006). Public investment in Europe: evolution and determinants in perspective. Fiscal Studies, 27(4), 443–471.
Melo, L. (2002). The flypaper effect under different constitutional contexts: the Colombian case. Public Choice, 111.
Miller, S. M., & Russek, F. S. (1997). Fiscal structures and economic growth. Economic Inquiry, 35, 603–613.
Mizutani, F., & Tanaka, T. (2005). Productivity effects and determinants of the allocation of public infrastructure. ERSA European Regional Science Association conference papers, 05, 412.
Olmsted, G. M., Denzau, A. T., & Roberts, J. A. (1993). We voted for this?: institutions and educational spending. Journal of Public Economics, 52(3).
Pallesen, T. (2006). Flypaper II. The equivalent impact of matching and lump sum grants: evidence from the change of grant regime in Danish local governments (Mimeo). Aarhus University.
Percoco, M. (2005). The impact of structural funds on Italian mezzogiorno: 1994–1999. Région et Développement, 21, 141–153.
Randolph, S., Bogetic, Z., & Hefley, D. (1996). Determinants of public expenditure on infrastructure. Transport and communication (World Bank Policy Research Working Paper, 1661).
Rodriguez-Pose, A., & Fratesi, U. (2004). Between development and social policies: the impact of European structural funds in objective 1 regions. Regional Studies, 38(1), 97–113.
Roubini, N., & Sachs, J. (1989). Government spending and budget deficits in the industrial countries. Economic Policy, 8.
Sturm, J. E. (2001). Determinants of public capital spending in less-developed countries. Munich: CESinfo.
Van Der Ploeg, F., & Bovenberg, L. (1994). Environmental policy, public goods and the marginal cost of public funds. The Economic Journal, 104, 444–454.
Volden, C. (2007). Intergovernmental grants: a formal model of interrelated national and subnational political decisions. The Journal of Federalism, 37(2), 209–243.
Weicher, J. C. (1972). Aid, expenditures and local government structure. National Tax Journal, 25.
Winer, S. L. (1983). Some evidence on the effect of the separation of spending and tax decisions. Journal of Political Economy, 91, 126–140.
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
González Alegre, J. An evaluation of EU regional policy. Do structural actions crowd out public spending?. Public Choice 151, 1–21 (2012). https://doi.org/10.1007/s11127-010-9731-5
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s11127-010-9731-5