The Political Economy of New Deal Spending Revisited, Again: With and Without Nevada

John Joseph Wallis , Explorations in Economic History 35(2) , 140-170 , April 1998.

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 scholars have debated whether the allocation of these grants between the states during the New Deal was 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. The importance of all the political variables is dramatically affected by the inclusion or exclusion of Nevada. The “Nevada” effect seems to be the result of the state's very small population. An alternative specification of the grant process produces new results that overturn some of the results in the existing literature.

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