The literature on the effect of federal grants on subordinate governmental units' expenditures has generally focused on broad expenditure categories and on all state or state and local governments considered together rather than as individual units. The present study focuses on the effect of federal grants on the expenditure and revenue decisions of individual governmental units, with the dependent program area expenditures being regressed on the specific individual grants for which they are eligible. The estimated equations indicate that the two individual governmental units considered do not respond to federal grants in similar ways.
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