State and Local Fiscal Behavior and Federal Grant Policy

Edward M. Gramlich and

EMG

Edward M. Gramlich University of Michigan

Harvey Galper

HG

Harvey Galper Urban Institute

Discussants: Martin McGuire and

MM

Martin McGuire

Stephen M. Goldfeld

SMG

Stephen M. Goldfeld

PURCHASES BY STATE AND LOCAL GOVERNMENTS have long been the most rapidly rising component of aggregate demand. While real consumption and investment expenditures have both doubled since the end of the Korean war, and federal purchases have increased barely at all, state and local purchases of goods and services have almost tripled. They have grown at an annual average rate of 5.5 percent and now account for over 10 percent of real gross national product (GNP).