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The Effect of a Differential Add-On Grant: Title I and Local Education Spending

Martin Feldstein
The Journal of Human Resources
Vol. 13, No. 4 (Autumn, 1978), pp. 443-458
DOI: 10.2307/145257
Stable URL: http://www.jstor.org/stable/145257
Page Count: 16
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The Effect of a Differential Add-On Grant: Title I and Local Education Spending
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Abstract

Analyses of intergovernmental aid emphasize the difference between matching grants and block grants. Since a block grant has only an income effect and no price effect, conventional theory predicts that block grants have a very small impact on the local government's expenditure on the favored activity. There is, however, a different type of block grant referred to in this paper as a "differential add-on grant." The purpose of the present paper is to measure the effectiveness of one such add-on grant, the federal government's program to increase local education spending on pupils from low-income families. The evidence implies that this aid is quite effective and therefore suggests that the traditional theory of intergovernmental aid should be extended to recognize this type of grant.

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