PUBLIC CAPITAL AND THE STATE-LEVEL VARIATION OF NEW DEAL EXPENDITURES

For more than three decades, scholars have examined the grossly unequal state- level per capita distribution of New Deal spending. Why did small population rural states such as Nevada, Montana, and Wyoming receive up to six times as many federal dollars per capita as densely populated states such as Connecticut, Rhode Island, and New York? Empirical studies employing economic and political variables have had mixed results in explaining this distribution. What past studies neglect is that a large proportion of New Deal dollars went towards the creation ofpublic goods, which had spillover effects particularly upon those who lived in close proximity to these projects. This paper suggests that the state-level distribution of per capita expenditures during the 1930s is consistent with what would be expected to follow from an economically efficient allocation ofpublic goods.