Welfare is often administered locally, but financed through grants from the central government. This raises the question how the central government can prevent local governments from spending more than necessary. We analyze block grants used in The Netherlands, which depend on exogenous spending...

This paper provides a spatial-econometric analysis of the setting of property tax rates by Dutch municipalities. We find evidence of tax mimicking: a ten percent higher property tax rate in neighboring municipalities leads to a 3.5 percent higher tax rate. Mimicking is less pronounced in...

Fiscal decentralisation introduces the risk that subnational governments may act in a fiscally irresponsible manner in the belief that a higher tier of government will bail them out if they run into trouble. The economic literature, therefore, prescribes a strict no-bailout policy. We survey...