Recent empirical studies have found - seemingly - efficiency-enhancing effects of vertical grants on local public service provision. The main purpose of this paper is to prepare an elaborate theoretical and empirical analysis of these contradictory results. Therefore, it investigates if certain...

This paper analyses the impact of vertical grants on local public sector efficiency. First, we develop a theoretical model in which the bureaucrat sets the tax price while voters choose the quantity of public services. In this model, grants reduce efficiency if voters do not misinterpret the...

This paper analyses the impact of vertical grants on local public sector efficiency. First, we develop a theoretical model in which the bureaucrat sets the tax price while voters choose the quantity of public services. In this model, grants reduce efficiency if voters do not misinterpret the...