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Does Federal Aid to States Aid the States?

Authors

  • Zachary Horváth,

  • Brian David Moore,

  • Jonathan C. Rork


  • Zachary Horváth is a Research Analyst at The Cadmus Group. Brian David Moore is a Research Assistant at the Urban-Brookings Tax Policy Center. Jonathan C. Rork is a Professor at the Department of Economics, Reed College, Portland, OR 97202, USA. His e-mail address is jrork@reed.edu. The authors are grateful for funding from the Miller/Mintz Summer Grant Program at Reed College. Views expressed should not be attributed to the Tax Policy Center or the Urban Institute, its board, or its funders.

Abstract

Using data from 1977 to 2009, we explore whether the agency issuing federal aid to states influences the rate of state economic growth. We find that agencies' housing poverty alleviation programs, such as the Department of Health and Human Services and the Department of Labor, have negative effects. The Department of Commerce and the Department of Interior have consistent positive effects, although this last effect is due to inordinately disproportionate spending in the state of Wyoming. Overall growth effects are relatively modest, suggesting that potential future cuts to federal discretionary spending may not be as damaging as feared.

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