Fiscal Federalism in Practice: Four essays on local public service production in Norway
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The Norwegian public sector appears both centralized and decentralized. On the one hand, municipalities are responsible for a large share of public sector spending, producing a wide range of important welfare services. On the other hand, municipal prioritization is to a large degree controlled by central government. Municipalities are mainly financed by transfers from central government, and the scope for variation in local taxes is limited. Although transfers mainly come as general grants, which in principle allows local prioritization, local service production is regulated by a large set of national legal regulations. The decentralized service production and the use of general grants are clearly inspired by fiscal federalism theory. However, the Norwegian system goes against central theoretical principles. This provides a basis for hypotheses for municipal and individual adaptions. This dissertation consists of four articles where such hypotheses are tested against the empirical reality of Norwegian public sector. Two of the articles concern child care and two concern social assistance. Chapter 2 analyzes the effect of an experiment where 20 Norwegian municipalities had their earmarked grants turned into general grants. Focus is on the child care sector, which at that time had the largest earmarked grant. The empirical analysis shows a small, yet statistically significant, reduction in child care supply among participating municipalities. Chapter 3 concerns the Norwegian child care reform. In 2004, municipalities became responsible for financing private child care institutions at levels corresponding to spending in the municipalities’ own child care. The analysis confirms that municipalities with a higher share of private child care reduced their spending in municipal child care compared to other municipalities. In chapter 4, I analyze the effect of national benefit norms for social assistance. A large number of municipalities adopted the national norms. There is, however, no sign of effect for actual social assistance payments. In chapter 5, I analyze the welfare migration hypothesis and find that social assistance clients migrate to municipalities with higher benefits. As in chapter 4, municipal social assistance generosity is measured by actual payments as opposed to local benefit norms.