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Journal of Economic Perspectives: Vol. 9 No. 4 (Fall 1995)

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The Flypaper Effect

Article Citation

Hines, James R., and Richard H. Thaler. 1995. "The Flypaper Effect." Journal of Economic Perspectives, 9(4): 217-226.

DOI: 10.1257/jep.9.4.217

Abstract

What happens to a state's spending when it receives an unconditional grant from the federal government? The standard theoretical analysis predicts that the increase in spending will be the same as that generated by an equivalent increase in local incomes--or roughly 5-10 percent for most states. In contrast, numerous empirical analyses have found that spending increases by much more, with some estimates near 100 percent. This result is known as the 'flypaper effect,' since the money appears to 'stick where it hits.' The authors review this evidence as well as other studies that find similar behavior in firms.

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Authors

Hines, James R. (John F Kennedy School of Government, Harvard U and NBER)
Thaler, Richard H. (U Chicago and NBER)

JEL Classifications

H77: Intergovernmental Relations; Federalism; Secession

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