An Institutional Explanation for the Stickiness of Federal Grants

Journal of Law, Economics and Organization, Vol. 26, No. 1, 263-264, 2008

22 Pages Posted: 17 Apr 2016

See all articles by Leah Brooks

Leah Brooks

George Washington University - Trachtenberg School of Public Policy and Public Administration

Justin Phillips

Columbia University - Department of Political Science

Date Written: September 12, 2008

Abstract

Researchers have struggled to understand why federal block grants, contrary to economic theory, have a large stimulative effect on the spending of state and local governments. This article proposes and tests an institutional explanation for this effect. We argue that certain budgetary rules, by limiting the ability of subnational governments to respond to voter demands for increased spending, may systematically force lawmakers to under-provide public goods. When this occurs, governments are likely to treat grant revenue as a supplement to total expenditures and not return this money to voters in the form of a tax cut as suggested by existing theory. To evaluate our hypothesis, we use data on the Community Development Block Grant program and municipal tax and expenditure limitations. Results show that restrictive fiscal institutions significantly increase the stimulative power of federal grant revenue.

JEL Classification: H7, H4, R5

Suggested Citation

Brooks, Leah and Phillips, Justin, An Institutional Explanation for the Stickiness of Federal Grants (September 12, 2008). Journal of Law, Economics and Organization, Vol. 26, No. 1, 263-264, 2008, Available at SSRN: https://ssrn.com/abstract=2752046

Leah Brooks (Contact Author)

George Washington University - Trachtenberg School of Public Policy and Public Administration ( email )

805 21st Street, NW
Suite 601
Washington, DC 20052
United States

Justin Phillips

Columbia University - Department of Political Science ( email )

7th Floor, International Affairs Bldg.
420 W. 118th Street
New York, NY 10027
United States

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