THE EFFECT OF EARMARKED REVENUES ON THE LEVEL AND COMPOSITION OF EXPENDITURES

This article provides estimates of the impact of earmarked revenues on the level and composition of state expenditures. Examined are four types of state spending - total, elementary and secondary education, highways, and aid to nonschool local governments -and two measures of earmarking - earmarked revenues per capita and earmarked revenues as a share of the favored expenditure category. An extra dollar of earmarked revenues results in either no change in expenditures or in increases in expenditures that are much smaller than a dollar. A greater reliance on earmarking as a share of expenditures results in either no change in spending or lower expenditures.