The theory of political yardstick competition states that a comparison of public service levels and tax rates with those in nearby jurisdictions can provide voters with a useful instrument to assess politicians’ performance. However, we argue that fiscal disparities bias this yardstick, and...

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...

Fiscal equalization through the allocation of central government grants may have adverse distributional implications if these grants capitalize into house values. We investigate the impact of changes in grants induced by a reform of the Dutch grant system. Since this reform was implemented...