The flypaper effect and political strength

Simple models of local government behavior predict equal effects of private income and unconditional federal grants on local government expenditures. Numerous empirical analyses, however, find that the effect of grants are much higher than the income effect. We argue that this flypaper effect may be a result of a weak political leadership in multi-issue and multi-party decision-making environments. In multi-issue institutions, a strong political leadership may reduce inefficiency due to interest group influence and inter-party bargaining in the local council. Utilizing data for Norwegian local governments in the 1930s, we find that political strength reduces the size of the flypaper effect. When the local council consis t of only one political party, we cannot reject nonexistence of a flypaper effect, while the flypaper effect is large in fragmented local councils.