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Measuring the Effects of Federal Grants-in-Aid on Total Public Sector Size

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  • Daniel P. Schwallie

    (Case Western Reserve University)

Abstract

Empirical studies of intergovernmental grants have applied a partial-equilibrium framework to investigate the marginal effects of grants on the spending by recipient governments, and generally conclude that all grants do stimulate such spending. Although it is tempting to interpret this to mean that an increase in grants therefore always increases aggregate government spending, such a conclusion gives no consideration to the underlying cause of a change in grant amounts or their financing. A general-equilibrium model that explains the aggregate effect of grants, as well as their existence, is used herein to estimate the aggregate stimulative effect of intergovernmental grants.

Suggested Citation

  • Daniel P. Schwallie, 1989. "Measuring the Effects of Federal Grants-in-Aid on Total Public Sector Size," Public Finance Review, , vol. 17(2), pages 185-203, April.
    • Handle: RePEc:sae:pubfin:v:17:y:1989:i:2:p:185-203
    DOI: 10.1177/109114218901700203
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    References listed on IDEAS

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    1. Schultze, Charles L, 1974. "Sorting Out the Social Grant Programs: An Economist's Criteria," American Economic Review, American Economic Association, vol. 64(2), pages 181-189, May.
    2. Fisher, Ronald C., 1982. "Income and grant effects on local expenditure: The flypaper effect and other difficulties," Journal of Urban Economics, Elsevier, vol. 12(3), pages 324-345, November.
    3. Logan, Robert R, 1986. "Fiscal Illusion and the Grantor Government," Journal of Political Economy, University of Chicago Press, vol. 94(6), pages 1304-1318, December.
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    Cited by:

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    2. Abdul Jalil, Ahmad Zafarullah, 2009. "Decentralization, Subnational Governments' Behaviour and Macroeconomic Instability: The Case of Malaysia," MPRA Paper 19071, University Library of Munich, Germany.

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