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SERC/Urban and Spatial Programme Discussion Paper
The Stimulative Effect of an Unconditional Block Grant on the Decentralized Provision of Care
Mark Kattenberg and Wouter Vermeulen November 2016
Paper No' SERCDP0209:
Full Paper (pdf)

JEL Classification: H42; H51; H71; H75

Tags: intergovernmental transfers; flypaper effect; decentralization of health care

Understanding the impact of central government grants on decentralized health care provision is of crucial importance for the design of grant systems, yet empirical evidence on the prevalence of flypaper effects in this domain is rare. We study the decentralization of home care in the Netherlands and exploit the gradual introduction of formula-based equalization to identify the effect of exogenous changes in an unconditional block grant on local expenditure and utilization. Although spending the money on other items is explicitly allowed, a one euro increase in central government grants raises local expenditure by twenty to fifty cents. Adjustments occur through the number of hours as well as through substitution between basic and more advanced types of assistance. These findings suggest that conditioning of grants is not required for the central government to retain a moderate degree of control over the decentralized provision of care.