This article analyzes the provision of public goods and services by state and local Abstract governments with fixed intergovernmental grants. Equilibrium conditions are derived for an activity with private and pure public joint products, funded by state
funds and fixed intergovernmental grants. Fixed grants are shown to impose an
additional constraint on lower level governments and induce them to supply fewer
units of the public good. Also, such grants impose a cost on the grantor equal to the
potential loss in spillins for each agent.
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