Recent empirical work on US governments indicates an asymmetry in the flypa
per effect: the elasticity of public spending with respect to changes in gr
ants differs significantly for positive and negative changes. Using a panel
of data on Flemish municipalities covering the period 1989-1996, we also r
nd clear evidence of asymmetrical reactions. More precisely, the results su
ggest the presence of a fiscal replacement type of asymmetry: when grants g
row, municipalities spend most of the additional revenue. However, when gra
nts fall, spending is unaffected and municipalities compensate the loss thr
ough additional taxation.