Asymmetric Effects of Intergovernmental Grants: Analysis and Implications for U.S. Welfare Policy

Craig Volden

Publius: The Journal of Federalism, vol. 29, issue 3, 51-73

Abstract: Theories of federal grants to states and localities suggest that these grants have a stimulative effect on spending, causing recipient governments to expand and contract programs along with changes in the grants. However, policymakers may respond differently to grant decreases than to grant increases because they face political and bureaucratic pressures to expand programs. These asymmetric reactions may depend on specific political structures. Pooled time-series regressions of data from the Aid to Families with Dependent Children program across 46 states from 1965 to 1994 demonstrate state government responses to grant changes. Bureaucratic pressures and proposals lead states to expand their welfare benefits upon increases in federal grants, but not to contract them upon decreases in federal grants. With regard to the 1996 welfare reforms, this study indicates that the switch to block grants will lead to little or no state reduction in welfare payments. Copyright , Oxford University Press.

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