%0 Journal Article
%T Vertical Grants and Local Public Efficiency: The Inference
%A Annette Illy
%A Ivo Bischoff
%A Peter B£¿nisch
%A Peter Haug
%J Public Finance Review
%@ 1552-7530
%D 2019
%R 10.1177/1091142117725393
%X The existing empirical literature on the impact of vertical grants on local public-sector efficiency yields mixed results. Given the fact that vertical financial equalization systems often reduce differences in fiscal capacity, we argue that empirical studies based on cross-sectional data may yield a positive relationship between grants and efficiency of public service production even when the underlying causal effect is not. We provide a simple illustrative theoretical model to show the logic of our argument and illustrate its relevance by an empirical case study for the German state of Saxony-Anhalt. We show that our main argument of an inference-disturbing effect applies to those existing studies that are more optimistic about the impact of vertical grants. Finally, we argue that it may disturb the inference drawn from studies in a number of other countries where vertical grants¡ªintended or not¡ªconcentrate in fiscally weak municipalities
%K vertical grants
%K local public finance
%K efficiency
%K DEA
%K bureaucracy
%U https://journals.sagepub.com/doi/full/10.1177/1091142117725393