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Republican Governors Spend Less Federal Aid to States Than Democrats...

Monday, February 15, 2021 12:24 PM | Bryan Casey (Administrator)

Republican governors spend less federal aid to states than Democrats, limiting its impact

Partisanship affects how federal aid to state governments is spent, say Gerald Carlino of the Philadelphia Fed and co-authors. By observing state spending after close gubernatorial elections—where the outcome was unlikely to have been decided by broader economic trends—the authors find that Democratic governors tend to spend their federal aid, while Republican governors use it primarily to reduce taxes. This significantly affects the impact of federal fiscal stimulus, the authors say: if Republican governors spent as much of the aid as their Democratic counterparts, the impact per dollar of federal to state transfers on aggregate income would be 61 cents higher. Republican-led states that allocate the aid to tax relief over spending see lower resulting increases in state output than Democratic states do, with spillover effects on other states’ output as well. These partisan differences in aid spending appear to have first emerged during the Reagan presidency, and risen with increased political polarization over time. [Brookings, February 11, 2021]

Dr. William Van Lear
Professor Emeritus
Economics Department
Belmont Abbey College


   

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