Abstract
During the New Deal the federal government initiated a policy of massive grants to states for support of social welfare and other programs. Since that time grants have come to be an integral part of the American fiscal system, and scholars have continued to debate whether the allocation of federal grants between the states is motivated primarily by political or social and economic objectives. This paper shows that, during the 1930s, both political and economic effects were important determinants of grant allocation, but that the Congressional factors considered by Anderson and Tollison are not important while the Presidential factors considered by Wright are. When the analysis is extended to the years 1932–1982, however, Congressional influences do seem important. On the other hand, the dominant influence on federal grant policy over the larger sample appears to be state government expenditures, while both political and economic influences play a smaller role.
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Notes
- 1.
Figures taken Advisory Council of Intergovernmental Relations (1994).
- 2.
- 3.
- 4.
See Wallis (1984) for a closer analysis of the grant numbers and the problems with using the census numbers.
- 5.
- 6.
Both state and local governments are important in this process. But state government’s received the largest share of federal grants and, as the empirical sections will demonstrate, it is state rather than local expenditures that influence the allocation of federal grants.
- 7.
There is little alternative for the Congress and the federal grant administrators. With the exception of general revenue sharing, grant programs are intended to increase government provision of particular services. If states are allowed to reduce their expenditures by substituting federal grants for state dollars, then grants will have a smaller effect of total expenditures than if the grant structure creates incentives for larger state expenditures. See Chernick (1979) for an interesting examination of the interaction between federal and local officials.
- 8.
Local government expenditures can be treated separately from state expenditures, as will be done in the empirical section.
- 9.
New Deal “expenditures” are the sum of grants made to states and expenditures within states made directly by the federal government. For many New Deal programs the distinction between direct expenditures and grants was not a clear one. For example, under FERA, relief grants were made to the states. The states then distributed the grants to local relief agencies who distributed the funds to individuals. Under the WPA, which was FERA’s primary successor in 1935, state and local WPA agencies and employees were actually federal government agencies and employees. So WPA wages were given “directly” to individuals while FERA relief benefits were granted to the states. As a result, both the terms expenditures and grants are used to describe the New Deal allocations. FERA policies are described in Wiliams (1939) and WPA policies in Howard (1943).
- 10.
The employment index is presented and explained in Wallis (1989).
- 11.
See Wright (1974) for a complete description.
- 12.
Although Anderson and Tollison (1991) report that both Senate and House tenures are counted in months, their table of summary statistics on p. 170 gives the average tenure in the Senate as 187 months, while the average tenure in the House is 0.22 months, roughly 7 days. Clearly there was an error in their coding. Since the House tenure variables enter into every regression, my results are different than theirs, sometimes significantly so. I have dated tenure in months from the opening day of the Congressional session beginning January 3, 1937 rather than in December of 1937 to facilitate collection of the panel data for the 1930s as well as for the twentieth century. I find average Senate tenure of 176 months (compared to 187 in Anderson and Tollison (1991)), average House tenure of 582 months, average Senate Appropriations Committee tenure of 42 months (compared to 55 months), and average House Appropriations Committee tenure of 59 months.
Anderson and Tollison (1991) report a mean for their Senate Leadership variable of 0.04, implying that Senators from two states held leadership positions between 1933 and 1939 (2/48=0.04). In fact, three Senators held leadership positions. The President Pro Tem of the Senate was Key Pittman of Nevada throughout the period. Joseph Robinson of Arkansas was elected Majority Leader the 73rd, 74th, and 75th Congresses, spanning the years 1933 to 1939. But Robinson died on July 14, 1937 and was replaced by Alben Barkley of Kentucky on July 22. As a result, three states are included in the Senate Leadership dummy variable: Nevada, Arkansas, and Kentucky.
- 13.
The Nevada effect can be seen in Anderson and Tollison’s (1991) original estimates. When they use electoral votes per capita, the Senate leadership variable is small and statistically insignificant. When they use the state’s rank in electoral votes per capita, the Senate leadership variable is large and statistically significant.
- 14.
The instrument for the employment index in each state and year is a composite index of state employment constructed from occupational weights from the 1930–1940 census, and monthly information on national employment by industry from the Bureau of Labor Statistics and the Federal Reserve Board. See Wallis (1987) for a detailed explanation.
- 15.
This result is in a regression including the Political Productivity variable, which is based on long term voting patterns. Several different alternative ways of including recent voting in Presidential elections were tried. Many were significant in simple panels, but using 2SLS and including fixed effects always eliminated their significance and reduced the magnitude of their coefficients substantially.
- 16.
The demographic variables are population density, percentage white, percentage male, percentage urban, population, the growth rate of total population int he preceding decade, percent of the population that is school age, and the average size of place of resident of typical urban residents. The economic and fiscal variables are real per capita income, real per capita state debt, real per capita local debt, real per capita assessed value of property, the rank of the state in per capita income tax collections, and the number of governments per capita in the state.
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Acknowledgements
Some of the data in this paper are the result of the generosity of Gavin Wright, and the support of George Stigler when I was a fellow at the Center for the Study of the Economy and the State. Farley Grubb was my research assistant then, and I have more recently been helped by Robert Satterfield and Brad Lewis. Wally Oates, Shawn Kantor, Price Fishback, and the Development of the American Economy program meeting participants provided helpful comments.
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Wallis, J.J. (2018). What Determines the Allocation of National Government Grants to the States?. In: Hall, J., Witcher, M. (eds) Public Choice Analyses of American Economic History. Studies in Public Choice, vol 35. Springer, Cham. https://doi.org/10.1007/978-3-319-77592-0_8
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