The Political Economy of New Deal Fiscal Federalism

John Joseph Wallis, Economic Inquiry 29(3), 510-524, July .


While the introduction of federal matching grants to finance the New Deal relief programs is usually viewed as a mechanism to insure federal control over state relief spending, a careful study of the New Deal reveals that the reverse was the case: matching grants allowed the states to escape close federal control. The standard economic model of inter-governmental grants reveals that the federal government will, if allowed, prefer to use discretionary rather than matching grants. With discretion, however, came power; power that neither the states nor Congress wished to see concentrated in the Executive branch.

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