Does Federal Aid to States Aid the States?

Using data from 1977 to 2009, we explore whether the agency issuing federal aid to states influences the rate of state economic growth. We find that agencies' housing poverty alleviation programs, such as the Department of Health and Human Services and the Department of Labor, have negative effects. The Department of Commerce and the Department of Interior have consistent positive effects, although this last effect is due to inordinately disproportionate spending in the state of Wyoming. Overall growth effects are relatively modest, suggesting that potential future cuts to federal discretionary spending may not be as damaging as feared. [ABSTRACT FROM AUTHOR]