This article presents a method for predicting the effects of different forms of
outside aid on local educational expenditure. The predictive power of the
suggested method is demonstrated with an experiment using district-level data
collected for the State of Virginia. The paper also tests the recent theoretical
results of David Bradford and Wallace Oates who have argued (1) that in a
median-voter setting matching grants are more stimulative than lump sum
grants of the same amount, and (2) that under certain conditions lump sum
grants are equivalent in their effects to a reduction in federal and state personal
taxes. The test results are favorable.
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