The Political Economy of Program Design

Abstract

When programs are grants to states, federal funds will be used to meet both the national objectives and the local priorities of the state or local government recipients. This article examines the decision to design new federal programs as either a grant to states or as administered by federal agencies. We predict that Congress will choose either the states or the federal bureaucracy based on which agent is more likely to manage the program consistent with the preferences of the Congressional majority. We examine the political and economic conditions present in the year before Congress created a program. We find that Congress’s perception of a government agency’s partisan orientation matters: A perceived divergence in partisan orientation between the Congress and federal agency increases the likelihood of a grant design. In addition, we see evidence that a grant design is preferred when the president is not a co-partisan of Congress.