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Goal Conflict and Fund Diversion in Federal Grants to the States


  • I would like to thank Robert Stein, Kenneth Meier, Chris Owens, Jill Nicholson-Crotty, and various anonymous reviewers for their helpful comments on earlier versions of this manuscript. An earlier version was presented at the 2002 annual meeting of the Midwest Political Science Association.

Sean Nicholson-Crotty is Visiting Assistant Professor of Political Science, Texas A&M University, 4348 TAMU, College Station, TX 77843-4348 (


Researchers using fiscal choice models have had limited success predicting fund diversion in federal grant programs. The application of a principal-agent framework to questions of fiscal federalism offered a potentially valuable alternative approach, but the traditional model employed by Chubb (1985) neglected potential variability in the degree of goal conflict between principals and agents. This article proposes an expanded framework, which incorporates the possibility of variation in goal conflict between participants in intergovernmental aid programs. The theory suggests that the level of policy congruence between recipient jurisdictions and the national government will determine the amount of grant funding diverted away from targeted policy areas. Findings from analyses of grant programs in two distinct policy areas support the hypothesis that grant effectiveness is partially a function of goal congruence. The relationship between intergovernmental partners is interactive, with the degree of policy agreement determining fund diversion in subnational jurisdictions, as well as the effectiveness of federal oversight activities. The findings have important theoretical implications for understanding both fiscal federalism and principal-agent relationships more generally.