Chapter 6: The United States grant system
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Federal grants to states and localities comprised 17 per cent of all federal spending in 2017, and 33 per cent of state general revenues. The share of funds that ultimately go to individuals, mainly for healthcare, has increased, while the share for capital expenditures has diminished sharply. Unlike most federalist countries, the US does not use untied grants for fiscal equalization. Instead, the US relies on categorical grants, with income-related matching and maintenance of effort requirements, to incentivize states and their localities to provide certain merit goods to the poor, and to enhance capital stocks. Interstate differences in redistribution remain substantial. Education funding is primarily a local responsibility, but almost half of revenues come from state aid. The equalizing effect of state aid has increased over time. Intergovernmental grants are important tools of countercyclical fiscal policy. Overall, grants are roughly additive to own revenues, though displacement or supplementation varies by grant type.

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