What Determines the Allocation of National Government Grants to the States?
During the New Deal the federal government initiated a policy of massive grants to states for support of social welfare and other programs. Since that time grants have come to be an integral part of the American fiscal system, and scholars have continued to debate whether the allocation of federal grants between the states is motivated primarily by political or social and economic objectives. This paper shows that, during the 1930s, both political and economic effects were important determinants of grant allocation, but that the Congressional factors considered by Anderson and Tollison are not important while the Presidential factors considered by Wright are. When the analysis is extended to the years 1932–1982, however, Congressional influences do seem important. On the other hand, the dominant influence on federal grant policy over the larger sample appears to be state government expenditures, while both political and economic influences play a smaller role.
Some of the data in this paper are the result of the generosity of Gavin Wright, and the support of George Stigler when I was a fellow at the Center for the Study of the Economy and the State. Farley Grubb was my research assistant then, and I have more recently been helped by Robert Satterfield and Brad Lewis. Wally Oates, Shawn Kantor, Price Fishback, and the Development of the American Economy program meeting participants provided helpful comments.
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