Flypaper effect and the fiscal interest model have been employed to explain the fiscal behaviour of local government officials in the Central Region of Ghana. Central government transfers or grants have taken dominion over local government expenditure compared with own-source revenues, creating a situation known as the flypaper effect. Using panel data for 17 local governments from 2008 to 2015, the study examined the fiscal behavior of local government officials when presented with intergovernmental fiscal transfers and own-source revenues. The analysis employed the panel data analysis of fixed effects and random effects. However, given the optimal unbiased results, the Generalized Least Squares (GLS) is estimated to account for heteroscedasticity and serial autocorrelation. The results show that central government transfers contribute more to local government expenditure than local governments’ own-source revenues. This situation confirms the flypaper effect on local governments in the Central Region, thus explaining the fiscal behavior of the local governments. Whilst the system of intergovernmental transfers in Ghana has been very successful in directing resources towards the local governments, it may be counterproductive in encouraging the local governments in raising their revenue at the local level as demonstrated by the presence of the flypaper effect.

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