Since 2000, the Federal government has sent a tidal wave of money to state and local governments. Federal grants to states and localities increased by 73% in the past decade and will reach roughly $439 billion this year alone.

Designed to aid states struggling with budget shortfalls and to promote particular federal policy objectives, this flood of cash is widely seen as an unqualified good by both Federal and State legislators.

Mercatus Senior Research Fellow Eileen Norcross and Mercatus Research Fellow Matt Mitchell lay out the many ways that well-intentioned federal grants to state and local governments contributes to skyrocketing state budget shortfalls, and how the interplay of state and federal budgeting rules promotes a cycle of pernicious deficits.