CHANGING NEEDS, STICKY BUDGET: EVIDENCE FROM THE GEOGRAPHIC DISTRIBUTION OF U.S. FEDERAL GRANTS

Most U.S. federal grants are allocated through arguably obsolete formulas, leading fast growing states to contend that they are not receiving their fair share of such grants. We examine this issue by analyzing the allocation of formula and non-formula grants during the period 1978–2008. We find that...

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Bibliographic Details
Published in:National tax journal 2013-06, Vol.66 (2), p.311-341
Main Authors: Larcinese, Valentino, Rizzo, Leonzio, Testa, Cecilia
Format: Article
Language:English
Subjects:
Allocations
Arizona
Budget
Budget allocation
Budgetary resources
Demographics
Economic planning
Economic policy
Expenditures, Public
Florida
Geographic distribution
Government grants
Government spending
Grants
Grants-in-aid
Highways
Inertia
Local finance
Medicaid
Nevada
Population dynamics
Population growth
Public finance
School districts
States
Studies
U.S.A
United States Senate
Valuation
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Summary:Most U.S. federal grants are allocated through arguably obsolete formulas, leading fast growing states to contend that they are not receiving their fair share of such grants. We examine this issue by analyzing the allocation of formula and non-formula grants during the period 1978–2008. We find that states with fast growing populations are penalized in the allocation of formula grants, whereas for non-formula grants population dynamics does not play a significant role. The estimated losses are sizable and heavily concentrated among the three fastest growing states — Nevada, Arizona, and Florida. Nevertheless, the majority of the U.S. states benefit from formula allocation, thus providing a plausible explanation for the status quo bias in budgetary formulas.
ISSN:0028-0283
1944-7477
DOI:10.17310/ntj.2013.2.02