A study on the flypaper effect in Indonesia revealed that aid:
A) crowded out government spending.
B) crowded in government spending.
C) was neutral to government spending.
D) was harmful to government spending.

Question

Quizplus · Accepted Answer

The flypaper effect suggests that aid or grants from higher levels of government to lower levels tend to stick where they hit, meaning they lead to increased spending by the receiving government rather than being fully substituted for local revenue sources. Therefore, in the context of Indonesia, if the study found the flypaper effect, it implies that aid crowded in government spending, meaning it led to an increase in government spending rather than reducing or being neutral to it.

A Study on the Flypaper Effect in Indonesia Revealed That