ABSTRACT
The previous chapter introduced the rationales and types of intergovernmental (IGR) grants. This chapter shows that fiscal impacts of IGR grants vary significantly depending on the rationales and types of the grants. This chapter covers the following issues:
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When the price of a certain product drops, consumers are affected by two factors. The product with a lower price is less expensive than other goods, which is an incentive for consumers to demand the now less expensive commodity. This effect is called the substitution, or price, effect. Consumers demand the commodity more, if it is a normal good, when its price decreases. Second, when consumers’ incomes grow, their purchasing power increases. As a result, they are likely to demand the commodity more. This is called an income effect (Mankiw 2012, 448-53).
