Public expenditure and the flypaper effect on local governments in the Puno region

Abstract

The study analyzed local public spending and the flypaper effect in the local governments of the Puno-2018 region, intergovernmental transfers can cause two effects, the flypaper effect and fiscal laziness, the flypaper effect is considered when intergovernmental transfers can cause a expansion of local public spending greater than in the face of an equivalent increase in the municipality's own income. To determine the existence of the flypaper effect, the local spending model was estimated based on fiscal variables. The results show the existence of the flypaper effect in the municipalities of the Puno region, the flypaper for the total sum of transfers received by the municipalities is 0.74%, according to the canon item the flypaper is 0.25% and the foncomun is 0.33%. This indicates that in the face of an increase in transfers from the canon and foncomun, local spending increases by 0.34% and 0.41% respectively, but given the same proportion of increase in tax revenue, local spending increases only by 0.09%, these results show that the expansion of local spending is greater in the face of transfers and this would prove that municipalities prefer to provide public goods with transfers than with tax revenues.