American Domestic Priorities: An Economic Appraisal by John M. Quigley

By John M. Quigley

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5 Overall, the new federalism is: (1) to leave the federal share of transfer outlays largely unaffected but to move to the federal level those redistribution expenditures (Medicaid) that the states have found the most difficult to control; (2) to replace federal categorical aid with lumpsum aid, thereby reducing federal control over state-local spending; and finally, (3) to reduce federal spending and taxes by gradually phasing out < previous page page_11 next page > < previous page page_12 next page > Page 12 the trust fund and its associated taxes.

And J. Papdachi. 1981. " Pp. 47-62 in M. J. , Collective Choice in Education. The Hague: Martinus Nijhoff. McGuire, M. 1978. " Journal of Public Economics 10: 25-44. , and J. R. Aronson. 1977. Financing State and Local Governments. : Brookings Institution. Mayhew, David. 1974. Congress: The Electoral Connection. New Haven: Yale University Press. Moffitt, R. 1984. " Journal of Public Economics 23: 279-306. , A. D. Manuel, and S. E. Calkin. 1975. Monitoring Revenue Sharing. : Brookings Institution.

Gramlich arrives at the larger estimate when he allows for the fact that states are likely to adjust their benefit levels to those of their neighboring, fiscally competitive states. Since high benefit levels are likely to attract low-income families (see Gramlich's paper in this volume) and possibly discourage the location of richer families and firms, no state can afford high benefit levels by itself. Once the federal categorical matching aid, a strong incentive for high benefits, is removed, interstate fiscal competition dominates the allocation process, and AFDC spending is likely to fall dramatically.

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