Central-local government relations in transition: The case of Swedish child care

The provision of subsidized child care has grown to become a sizeable econo mic activity in Sweden during recent decades. This paper examines the chang ed financial relation between central and local governments and the impact of child-care grants on local government behaviour. We find that during an earlier regime, with a system of matching grants, local governments respond ed strongly to the incentives of the rules. This resulted in both intended and unintended outcomes, as well as a distortion of information to the cent ral government. Experiences from a recent transition of regime towards a ki nd of closed block grant system, illustrates new types of adaptive behaviou r but also the problem of finding a formula for a fair allocation of resour ces among local governments. When designing a block grant system a distinct ion must be made between expenditures and resource needs; cost expenditure data do not necessarily reflect resource needs in cases where there are nat ional categorical equity goals related to social services of a merit-want c haracter.