General revenue sharing and public sector unions

• I examine a general revenue sharing program implemented from 1972 to 1986.
• I find evidence that indicates a strong flypaper effect in city governments.
• I find that public sector unions skewed the use of grants towards increased wages rather than increased government services.
• These findings could have implications for the size of the fiscal multipliers associated with intergovernmental transfers.

In this paper, I find that in the context of a large intergovernmental general revenue sharing program implemented from 1972 to 1986, cities increased expenditures one-for-one with federal grants, which is suggestive of a large flypaper effect. Furthermore, I find that cities in states with pro-union collective bargaining laws spent more than half of the transfers on increased wages, while cities in states without such laws spent a greater fraction on increased government services. These latter findings suggest that public sector unions play an important role in determining the usage and impact of intergovernmental grants.