TITLE:
Flypaper Effect of Intergovernmental Transfers and Incentives to Improve Own-Source Revenue Mobilization of Local Governments in the Central Region of Ghana
AUTHORS:
Christopher Dick-Sagoe, Ernest Ngeh Tingum
KEYWORDS:
Flypaper Effect, Fiscal Transfer, Local Governments, Fiscal Interest, Own-Source Revenue, Intergovernmental Fiscal Transfer
JOURNAL NAME:
Open Journal of Social Sciences,
Vol.9 No.8,
August
31,
2021
ABSTRACT: Flypaper effect and the fiscal interest model have been employed to
explain the fiscal behaviour of local government officials in the Central
Region of Ghana. Central government transfers or grants have taken dominion
over local government expenditure compared with own-source revenues, creating a
situation known as the flypaper effect. Using panel data for 17 local
governments from 2008 to 2015, the study examined the fiscal behavior of local
government officials when presented with intergovernmental fiscal transfers and
own-source revenues. The analysis employed the panel data analysis of fixed
effects and random effects. However, given the optimal unbiased results, the
Generalized Least Squares (GLS) is estimated to account for heteroscedasticity and serial autocorrelation. The results show
that central government transfers
contribute more to local government expenditure than local governments’ own-source revenues. This situation confirms the
flypaper effect on local governments in the Central Region, thus explaining
the fiscal behavior of the local governments. Whilst the system of
intergovernmental transfers in Ghana has
been very successful in directing resources towards the local governments,
it may be counterproductive in encouraging the local governments in raising
their revenue at the local level as demonstrated by the presence of the
flypaper effect.