25 Years IWH

Professor Dr Ivo Bischoff

Professor Dr Ivo Bischoff
Current Position

since 11/12

Research Professor

Halle Institute for Economic Research (IWH) – Member of the Leibniz Association

since 10/09

Professor for Public Finance

University of Kassel

Research Interests

  • urban development and urban land use policy
  • inter-municipal cooperation

Professor Ivo Bischoff is the Chair for Public Finance at the University of Kassel. His research interests are concentrated in the fields of public finance, economic systems and public choice. At the IWH he contributes to the studies of urban economics.

On this website, publications resulting from cooperation with the IWH are listed. A complete list of publications is available on the author's website.

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Professor Dr Ivo Bischoff
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Working Papers


Vertical Grants and Local Public Efficiency

Ivo Bischoff Peter Bönisch Peter Haug Annette Illy

in: IWH Discussion Papers , No. 1, 2013


This paper analyses the impact of vertical grants on local public sector efficiency. First, we develop a theoretical model in which the bureaucrat sets the tax price while voters choose the quantity of public services. In this model, grants reduce efficiency if voters do not misinterpret the amount of vertical grants the local bureaucrats receive. If voters suffer from fiscal illusion, i.e. overestimate the amount of grants, our model yields an ambiguous effect of grants on efficiency. Second, we use the model to launch a note of caution concerning the inference that can be drawn from the existing cross-sectional studies in this field: Taking into account vertical financial equalization systems that reduce differences in fiscal capacity, empirical studies based on cross-sectional data may yield a positive relationship between grants and efficiency even when the underlying causal effect is negative. Third, we perform an empirical analysis for the German state of Saxony-Anhalt, which has implemented such a fiscal equalization system. We find a positive relationship between grants and efficiency. Our analysis shows that a careful reassessment of existing empirical evidence with regard to this issue seems necessary.

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