Pools time-series, cross-sectional data to estimate school districts' responses to the fiscal incentives implicit in a guaranteed tax base plan introduced in l973. The "price" effect is very small: an elasticity of -.02. A large change in the matching rate — from 0 to 1 — would stimulate additional expenditures of only $12 per pupil in the average district. The Michigan data provide no evidence that state matching grants stimulate district expenditures enough to be a useful policy tool. State block grants likewise exert a very small effect on district expenditures; each dollar of grant money increases expenditures by only 6 cents per pupil on average. However, the results imply that expenditures increase by 32 to 38 percent of the amount of state or federal categorical aid.
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