Asymmetries in the Response to Increases and Decreases in Intergovernmental Grants: Some Empirical Findings

Is state and local spending as responsive to cuts in federal grants as it has been to increases in these grants? Using aggregate time-series data on state and local expenditures, this paper explores the budgetary response to cuts in federal grant programs in recent years. Unlike some earlier work, the findings reveal no asymmetries in this response: we cannot reject the hypothesis that state and local spending falls in response to cuts in federal grants by roughly the same magnitude as it rises in response to increases in these grants. The "flypaper effect" appears to operate in both directions.