An Assessment of Fiscal Federalism in the Early 21st Century

Abstract

This analysis draws on a study by Robert Inman in the late 1980s where he examined broad based trends in fiscal federalism and assistance to the states. In this analysis, he found that federal grants are redistributive across the states, but also that political dynamics appear to play a significant role. Since this time, research on specific grant programs has suggested a deterioration in the federal redistributive role. This research examines influences on the distribution of federal grant-in-aid funds to state and local governments from 1998-2009 across a variety of indicators and finds that poverty in particular has an inverse effect on state receipt of federal grants per capita. This effect appears to be driven in large part by Medicaid funds per capita which are also negatively affected by poverty levels. Although selected income security programs such as food stamps continue to have a redistributive effect, programs such as Temporary Assistance for Needy Families (TANF) and federal compensatory education programs, all of which are intended to target poverty, have no correlation with state poverty levels.