Studying the Flypaper Effect in the Provinces of Iran (2000-2013)

Abstract The present study attempted to experimentally analyze the effect of fiscal illusion in the form of Flypaper effect on spending demand levels of provincial governments in Iran. To this aim, theoretical foundations and literature review were presented, and then the model used for investigation was specified. Finally, using time series data for provinces of Iran during 2000-2013 estimation and experimental analysis were performed. In Iran’s economy, the central government award grants to the provincial government which are mainly from oil revenues, so that this type of dedicated revenues to provincial governments were considered as the intergovernmental grant (from central government to the provincial government). The results show that in Iran, flypaper effect will be accepted in the provinces of Iran.