GRANTS-IN-AID: SOME FURTHER ANSWERS

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Abstract
This article investigates the simultaneous determmation of grants and expenditures, the question of whether Federal funds stimulate or substitute for state-local expenditures, and the effect of individual state characteristics on statistical estimates. Pooling data for 48 states over a 9-year period (1958-1966), ordinary two-stage, and generalized least squares estimates are compared to show that grants and expenditures are not simultaneously determined, that grants stimulate state-local expenditures of their own funds on aided categories and cause expenditure reductions on unaided categories, and that the effect of individual state characteristics is important and has been incorrectly considered in previous work.