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International Tax and Public Finance

, Volume 24, Issue 1, pp 60–95 | Cite as

Why not fully spend a conditional block grant?

  • Riemer P. Faber
  • Pierre Koning
Article

Abstract

This paper studies a conditional block grant that Dutch municipalities receive for welfare-to-work programs. Many municipalities do not fully use this grant, although programs are beneficial for them. We argue that municipalities incur expenses to use the grant. If these costs are substantial, then it is optimal not to fully use the grant. Based on municipality-specific data on grants and actual expenditures, we estimate that municipalities have to add about 90 cents from their own resources to spend 1 euro of the grant. As a result, the conditional block grant is de facto a closed-ended matching grant.

Keywords

Intergovernmental grants Conditional block grants Welfare-to-work programs 

JEL Classification

H77 H20 H71 I38 

Notes

Acknowledgments

We thank two anonymous referees, Jan Boone, Paul de Bijl, Heleen Hofmans, Wouter Roorda, Patrick Voogd, Jan van Eck, Margaretha Buurman, Marta Curto Grau, Wolter Hassink, and Evert Jan Slootweg for helpful comments. The majority of the work on this paper was completed while the authors were at the CPB Netherlands Bureau for Economic Policy Analysis. Views expressed are those of the authors and do not necessarily reflect the official positions of Charles River Associates or the CPB Netherlands Bureau for Economic Policy Analysis.

Compliance with ethical standards

Conflicts of interest

The authors declare that they have no conflict of interest.

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Copyright information

© Springer Science+Business Media New York 2016

Authors and Affiliations

  1. 1.Charles River Associates, European Competition PracticeLondonUK
  2. 2.Leiden UniversityLeidenThe Netherlands
  3. 3.VU University AmsterdamTinbergen InstituteAmsterdamThe Netherlands
  4. 4.IZABonnGermany

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