Recent legislation has altered the requirement that Federal aid for state highways be limited to capital improvements and be supported by matching funds from the state's own revenues. Using an economic model of decisionmaking, this study examines the expenditure and revenue responses to be expected under a system of federal nonmatching grants. Structural equations are developed for state highway expenditures and revenues, and then specified in a form suitable for regression analysis. The regression results are used to infer the impact of nonmatching grants, and these results are then compared with direct estimates of the impact of matching grants on state highway construction expenditures. Finally, the reduced form equations for capital and current highway spending are used to predict the FY 1972 total spending patterns for individual states under two different grant systems: (1) the present matching grant system and (2) the combined system of matching grants for interstate construction and nonmatching grants for other transportation spending. 75 pp. Ref.
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