A POLITICOECONOMIC APPROACH TO INTERGOVERNMENTAL LUMP-SUM GRANTS

This paper develops a positive approach to grant design when the centr al government and a lobby of local governments are the main agents. It develops the hypothesis that the regressivity or progressivity of per capita grants regarding community size is, ceteris paribus, related t o the structure of the lobbying activities of local governments and is independent of hypothetical economies or diseconomies of scale in the production of local public goods. An encompassing lobby organisation using a ''one mayor one vote'' system of representation supports the r egressivity of per capita grants while under ''proportional'' represen tation the lobby will support a design of per capita grants which is p rogressive towards community size. An empirical analysis of lump-sum g rants in Portugal supports the politico-economic hypothesis and reject s the hypothesis that economies of scale is the main explanatory cause for the observed regressivity of per capita grants.