Grant Impact on Local Fiscal Behavior: Full-Information Maximum Likelihood Estimates

James R. Follain
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James R. Follain: Federal Home Loan Bank, San Francisco

Public Finance Review, 1979, vol. 7, issue 4, 479-500

Abstract: A wide variety of econometric studies have been conducted to determine Abstract whether conditional grants have a different effect upon local fiscal behavior than unconditional grants and to determine if unconditional grants reduce tax effort. Unfortunately, the studies have not finally resolved these questions. In this paper, a system of expenditure and tax equations are precisely derived from the Geary-Stone utility function. The system of equations is estimated simultaneously using a Full-Information Maximum Likelihood Estimator and the validity restrictions implied by the Geary-Stone utility function. The results indicate that conditional grants do not generally have a different impact upon local expenditures than unconditional grants and that unconditional grants do not seriously dampen local tax effort. Further, the results indicate that the Geary-Stone model is plausible.

Date: 1979
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Persistent link: https://EconPapers.repec.org/RePEc:sae:pubfin:v:7:y:1979:i:4:p:479-500

DOI: 10.1177/109114217900700404

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