Paper Title
Do intergovernmental financial transfers have an effect upon municipal borrowing? Subsequent effect of flypaper theory in municipalities in turkey

The postulate that intergovernmental financial transfers affect the increase in local government spending more than the own revenues do is taken as flypaper effect. If so, then a municipality, for instance, is expected to spend more not because of the increase in its own revenue sources but because the increase in financial transfers received from higher level authority. However, municipalities have also borrowing option to finance their own expenditures. Thus the present threefold relation between transfers, own revenues and expenditures need to be enhanced by borrowing. In the past decade, the borrowing amount of municipalities in Turkey have distinguishably leaped up higher levels, whereas grants from central government also rises. This study examines whether a causality exists between the growth of intergovernmental financial transfers and of borrowing in municipalities in Turkey. The results in our estimation presents that there is a long run causality in both financial sources. From a different view, the flypaper effect triggers the borrowing of municipalities in Turkey. Keywords- Intergovernmental financial transfers, municipal borrowing, flypaper effect