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How are matching grants more effective than nonmatching grants in increasing expenditures?

How are matching grants more effective than nonmatching grants in increasing expenditures?

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Matching grants are more effective than non-matching grants in increasing expenditures because in case of matching grants for every unit that is spent by the state a specified sum is spent by the central authority. As such a matching grant acts like a subsidy. In case of unconditional non-matching grant no constraints are put on how to spend and as the grant can be spend on any combination of public goods and services it does not modify relative prices. Due to this there is least level of stimulation provided with regards to local spending.

As such we can say that matching grant is more successful, when compared to non-matching grant, when it comes to stimulating local expenditure on a particular good or service. On the other hand when general welfare has to be increased then non-matching grant is more effective of the two.

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