The Birth of the Old Federalism: Financing the New Deal, 1932–1940

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Abstract
The relative importance of federal and local government was reversed between 1932 and 1940. This changing composition of government expenditures by level of government accounts for the rise of “big” government during the Depression. State governments expanded their fiscal activity, maintaining their share of total government expenditures. Utilizing data on federal grants and state and local expenditures, I find that the relative decline of local governments and sustained growth of state governments can be explained by the financial and administrative provisions of the federal New Deal programs.