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Capital-Intensive Projects Induce More Effort Than Labor-Intensive Projects

By Amihai Glazer and Stef Proost

Abstract

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.Federalism; Capital subsidies; Transit subsidies

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