The impact of federal and state grants on local government spending: A test of the fiscal illusion hypothesis
AbstractThis article offers an empirical test of the fiscal illusion hypothesis. It is argued that, if fiscal illusion increases with the degree of separation in taxing and spending powers, then federal unconditional grants ought to have a greater stimulatory impact on local government spending than state unconditional grants. Data for the 136 counties and cities of Virginia were examined and evidence in support of this hypothesis is provided. Federal grants were found to be the primary source of the stimulatory impact of grants. At the minimum, federal unconditional grants have twice the stimulatory effect as state unconditional grants.
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Bibliographic InfoPaper provided by Monash University, Department of Economics in its series Monash Economics Working Papers with number archive-11.
Length: 15 pages
Date of creation: 1990
Date of revision:
Publication status: Published in Public Finance Review July 1990 vol. 18 no. 3 313-327
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Postal: Department of Economics, Monash University, Victoria 3800, Australia
Web page: http://www.buseco.monash.edu.au/eco/
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- Philip J. Grossman, 1990. "The Impact of Federal and State Grants on Local Government Spending: a Test of the Fiscal Illusion Hypothesis," Public Finance Review, , vol. 18(3), pages 313-327, July.
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