Volume 13, Number 4 (Fall) 1978
Feldstein, Martin. 1978. "The Effect of a Differential Add-On Grant: Title I and Local Education Spending." Journal of Human Resources 13(4):443-458.
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.
The author is Professor of Economics, Harvard University, and President, The National Bureau of Economic Research. I am grateful to Daniel Erdmann for assistance with this work, to Charles Troob for helpful discussions, and to the Compensatory Education Division of the National Institute of Education, U.S. Department of Health, Education, and Welfare, for useful suggestions and financial support.
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