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Federal Grants, Earmarked Revenues, and Budget Crowd‐Out: State Highway Funding
Author(s) -
NESBIT TODD M.,
KREFT STEVEN F.
Publication year - 2009
Publication title -
public budgeting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.694
H-Index - 30
eISSN - 1540-5850
pISSN - 0275-1100
DOI - 10.1111/j.1540-5850.2009.00930.x
Subject(s) - revenue , endogeneity , state (computer science) , tax revenue , business , finance , public economics , state highway , economics , transport engineering , engineering , computer science , algorithm , econometrics
This paper examines the potential for budget crowd‐out in state highway financing. Highway projects are funded primarily through state earmarked tax revenues and federal highway grants. Theoretically, these two sources of revenues could crowd‐out state general funds, freeing up these funds for other uses. Previous studies of highway funding show little evidence of significant crowd‐out, providing support for the “flypaper effect.” The empirical model of this paper better controls for the endogeneity of federal highway grants and state earmarked highway revenues than previous studies and results suggest little to no crowd‐out. Also, our study concludes that state budgeting decisions in the post‐Intermodal Surface and Transporation Efficiency Act era still support the “flypaper effect.”