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Dynamic Effects of Federal Grants on Local Spending

  • Zou Heng-fu

In a dynamic model of local government spending, this paper examines both long-run and short-run effects of permanent federal grant changes on local public investment and recurrent expenditures. It also utilizes the Judd approach to quantify the short-run effects of temporary (current and future) policy shocks. The interesting, perhaps surprising, findings are: (1) a permanent increase in the matching grants for investment and recurrent expenditures may accelerate or slow down public investment and (2) a current, temporary grant increase stimulates current public investment, but a temporary, future increase in the nonmatching grant reduces current investment and raises current recurrent expenditures.

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File URL: http://www.sciencedirect.com/science/article/B6WMG-45NJHKF-P/2/14a60f88c7e205122364d710c78ef5ba
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Article provided by Elsevier in its journal Journal of Urban Economics.

Volume (Year): 36 (1994)
Issue (Month): 1 (July)
Pages: 98-115

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Handle: RePEc:eee:juecon:v:36:y:1994:i:1:p:98-115
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622905

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