This collection contains Honours material from University of Adelaide students within the School of Economics. The material has been approved as making a significant contribution to knowledge.
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Browsing School of Economics by Author "Nover, Justus"
How do intergovernmental grants affect the level of efficiency in lower-level governments?
The existing literature on this topic provides inconclusive evidence regarding the underlying relations
of cause and effect as well as its direction. We shed light on this question by suggesting a more general
framework on administrative discretion within local governments. Two hypotheses are developed and
tested for a panel of municipalities in the German state of Baden-Wurttemberg. Our dual estimation
approach includes parametric Stochastic Frontier Analysis (SFA) and non-parametric Data Envelopment
Analysis (DEA). This constitutes a valuable robustness check of the results regarding the
choice of the reference technology. The findings confirm the decisive character of local administrative
discretion and self-interest lead behaviour, inducing an either positive or negative efficiency effect of
grants. Besides providing novel insights for the literature, the conclusions are relevant for the architecture
of grant policies since intergovernmental transfers are nowadays among the most important
sources of income at the local level.