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Earmarking and the business cycle: The case of state spending on higher education

  • Bhatt, Rachana
  • Rork, Jonathan C.
  • Walker, Mary Beth
Registered author(s):

    Recent economic events have created severe budget problems for state governments, and one area seemingly affected by this fiscal crisis is state funding for higher education. State governments have the ability to alter funding to higher education mostly through general fund contributions and earmarked revenue. This paper examines trends in state higher education appropriations, with a specific focus on the relationship between these two funding sources. We find that on average, total appropriations have actually increased over the past decade, and moreover, earmarked revenue has constituted an increasing share of higher education funding, while general fund contributions have been declining. Our regression analysis suggests that the magnitude of the fungibility between the two sources is substantial, but somewhat surprisingly, does not differ across recessions and expansions.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0166046211000226
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    Article provided by Elsevier in its journal Regional Science and Urban Economics.

    Volume (Year): 41 (2011)
    Issue (Month): 4 (July)
    Pages: 352-359

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    Handle: RePEc:eee:regeco:v:41:y:2011:i:4:p:352-359
    Contact details of provider: Web page: http://www.elsevier.com/locate/regec

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    1. Gamkhar, Shama & Oates, Wallace E., 1996. "Asymmetries in the Response to Increases and Decreases in Intergovernmental Grants: Some Empirical Findings," National Tax Journal, National Tax Association, vol. 49(4), pages 501-12, December.
    2. Thomas S. Dee, 2004. "Lotteries, Litigation, and Education Finance," Southern Economic Journal, Southern Economic Association, vol. 70(3), pages 584-599, January.
    3. Byron Lutz & Raven Molloy & Hui Shan, 2010. "The housing crisis and state and local government tax revenue: five channels," Finance and Economics Discussion Series 2010-49, Board of Governors of the Federal Reserve System (U.S.).
    4. Richard F. Dye & Therese J. McGuire, 1992. "The Effect of Earmarked Revenues On the Level and Composition of Expenditures," Public Finance Review, , vol. 20(4), pages 543-556, October.
    5. Edward M. Gramlich & Harvy Galper, 1973. "State and Local Fiscal Behavior and Federal Grant Policy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 4(1), pages 15-66.
    6. Julian R. Betts & Laurel L. McFarland, 1995. "Safe Port in a Storm: The Impact of Labor Market Conditions on Community College Enrollments," Journal of Human Resources, University of Wisconsin Press, vol. 30(4), pages 741-765.
    7. Browning, Edgar K, 1975. "Collective Choice and General Fund Financing," Journal of Political Economy, University of Chicago Press, vol. 83(2), pages 377-90, April.
    8. James M. Buchanan, 1963. "The Economics of Earmarked Taxes," Journal of Political Economy, University of Chicago Press, vol. 71, pages 457.
    9. Brad R. Humphreys, 2000. "Do Business Cycles Affect State Appropriations to Higher Education?," Southern Economic Journal, Southern Economic Association, vol. 67(2), pages 398-413, July.
    10. Evans, William N. & Owens, Emily G., 2007. "COPS and crime," Journal of Public Economics, Elsevier, vol. 91(1-2), pages 181-201, February.
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    12. Brian Knight, 2002. "Endogenous Federal Grants and Crowd-out of State Government Spending: Theory and Evidence from the Federal Highway Aid Program," American Economic Review, American Economic Association, vol. 92(1), pages 71-92, March.
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