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Laboratory federalism and intergovernmental grants

Published online by Cambridge University Press:  28 December 2017

GIAMPAOLO GARZARELLI Open the ORCID record for GIAMPAOLO GARZARELLI [Opens in a new window]  and
LYNDAL KEETON Open the ORCID record for LYNDAL KEETON [Opens in a new window]
GIAMPAOLO GARZARELLI*
Affiliation:
DiSSE, Sapienza – Università di Roma, Rome, Italy IPEG, SEBS, University of the Witwatersrand, Johannesburg, South Africa
LYNDAL KEETON*
Affiliation:
Institutions and Political Economy Group & School of Economic and Business Sciences, University of the Witwatersrand, Johannesburg, South Africa
*
*Email: [email protected]
**Email: [email protected]
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Abstract

This article contributes to an institutional economics analysis of the public economy by answering the following question: what is the role of intergovernmental grants in laboratory federalism? In line with factual evidence, the fiscal federalism literature on policy experimentation hints that grants can be employed to stimulate policy innovation through trial and error learning. Yet it lacks a theory of policy experimentation through grants, meaning that, in effect, we lack a fiscal theory of laboratory federalism. In the proposed approach, an intergovernmental grant is likened to a fiscal institution for political compromise between levels of government that frames policy experimentation options and constraints. At the same time, since policy solutions are not always easy to find or to implement, policy experimentation requires some degree of flexibility. Thus, the article shows that the extent of experimentation induced by a grant is influenced (or, more fashionably, nudged) by the conditionality attached to the grant. It argues, moreover, that if a grantor would like to induce more (less) experimentation, then, all other things equal, a grant with fewer (more) conditions attached should fare better than a grant with more (fewer) conditions attached.

Type
Research Article
Information
Journal of Institutional Economics , Volume 14 , Issue 5 , October 2018 , pp. 949 - 974
Copyright
Copyright © Millennium Economics Ltd 2017 

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