K.U.Leuven, Faculty of Economics and Applied Economics : Department of Economics
CES - Discussion paper series (DPS) 08.31 pages:1-12
Central governments often subsidize capital spending by local governments, instead of subsidizing operating expenses or labor-intensive projects. This paper offers one explanation, focusing on the incentive effects for local officials. a local official can more easily shift the cost of optimizing a project to his successor on a labor-intensive project than on a capital-intensive project.