The Role of Federal Budget and Trust Fund Institutions in Measuring the Effect of Federal Highway Grants on State and Local Government Highway Expenditure

Abstract

Federal highway financing institutions affect the response of state and local government spending to federal highway aid. Most previous studies of the spending effects of federal highway grants consider federal highway expenditure as the highway grant variable, disregarding the reimbursement nature of this expenditure and the multiyear availability of highway aid. This article argues that obligations of federal highway aid to states rather than actual federal expenditure should be used in models assessing the spending effects of federal highway grants. Considering federal obligations rather than expenditure results in a greater effect of highway grants on spending than reported in previous studies.