The flypaper effect : A study of the flypaper effect in Swedish municipalities

Sammanfattning: The purpose of this thesis is to examine whether there is a flypaper effect on the municipality’s welfare service expenditures, that is, if increased government grants will accelerate the welfare service expenditures more than increased tax revenues. The empirical analysis was made using a fixed effect model with data from all 290 municipalities in Sweden between 2011-2018. The results from the empirical model show that there is a flypaper the municipality’s welfare service expenditure, which is in line with the theoretical framework and previous literature. This result imply that the future welfare services will become more expensive if they are funded by increased government grants, rather than by increased tax revenues.