Earmarked Grants and Accountability in Government

Over the years the number and importance of earmarked grants has at times risen and at times fallen in different countries. The conventional theory of fiscal federalism, which sees earmarking largely as a means to deal with positive spillovers in local expenditures, explains neither the level of such grants nor the trends over time. Nor can it readily account for the existence of non-matching, but still categorical, block grants. In this paper, we explore several alternative perspectives that interpret earmarking as a response to information failures between governments and, even more fundamentally, to accountability issues that arise between governments as well as between governments and voters.