Block grants and education expenditure
block grants, flypaper effect, education expenditures, federalism
This article investigates the effects of block grants on education expenditures using panel data from Canadian provinces over the period 1982 to 2008. Our main empirical identification strategy relies on the use of the allocation formula for equalization grant—a component of the Canadian federal block grant. The results indicate that block grants have stimulative effects on provincial education expenditure. Our results suggest that a one dollar increase in per capita federal grants is associated with an increase in per capita education expenditure of about Can$0.21, which is roughly proportional to the share of education in total provincial spending. The results are robust to various sensitivity checks.
Ferede, E. and Islam, S. (2016). “Block Grants and Education Expenditure: Evidence from Canadian Provinces.” Public Finance Review 44: 635-659.
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