A Model of State Income Maintenance Decisions

Abstract

This study presents a model of state-local government budgetary choice with particular emphasis on the impact of federal grants-in-aid on income maintenance decisions on the part of the recipient governments. The model assumes that the state sets the level of five decision variables in a manner that maximizes political leadership utility subject to a government budget constraint. As part of the study, parameters of the political leaders' preference function are estimated as are parameters of equations explaining the reactions of potential welfare recipients and local bureaucrats, once certain welfare regulations are set at the state level. The model permits simulations of the effects of alternative public programs. These are briefly described.