Differences in reimbursement requirements among federal programs encourage unwise investment decisions by creating incentives for uneconomical design of individual programs, uneconomical use of existing facilities, uneconomical allocation of budgetary resources among program areas, and uneconomical allocation of national resources to the public sector. In addition, these differing federal subsidies have a tendency to increase the disparity among income groups. Comparison of actual and optimal reimbursement rules for water resource programs indicates that federal reimbursement policy has encouraged overinvestment in these programs and the selection of nonoptimal techniques of production. Analysis of the equity impact of federal cost-sharing policies suggests that subsidies for many federal programs have had an unfavorable effect on the distribution of income.
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