Graduate Thesis Or Dissertation
 

The fiscal response of Oregon counties to mental health grants

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  • State and federal aid payments to local governments have grown explosively over the last fifteen years. One reason for this growth is that the donor governments can alter a local government's budget choices through grants. Grants have not remedied social problems, however, because the local governments' responses to grants were not anticipated. Economists have broadened our understanding, but debates remain about the proper modeling of local buur grant impact knowledge. Accordingly, this study examined the effects of thdgeting and, because researchers used aggregated data, gaps exist in oree types of mental health grants on the budget allocations for Oregon counties. The theoretical literature on the expenditure effects of grants was first reviewed. The constrained maximization, median voter, and budget maximization models of local fiscal decision-making were described and then compared as to their predictions about the effects of different grants. It was concluded that too little was known about budgetary processes to use or compare the models' predictions. Empirical studies were then reviewed. Researchers, largely using demand frameworks, found that grants significantly affected local spending and that different grants induced different spending responses. Their estimates of the stimulus differed, though. Moreover, little or no research was undertaken on the employment, wage, and output effects of grants. The theoretical and statistical problems with these studies were examined. These problems were: (1) the misspecification of aid variables; (2) the aggregation of government units and public services; (3) the lack of institutional and political realism. A theoretical model of Oregon counties' expenditure and production decision-making for mental health services was developed based on the insights and criticisms of existing models. The model consists of eleven equations; some describing the "expenditure stage" of the budget process, others describing the "output stage". It was argued that county commissioners make the expenditure decisions, and that mental health administrators make the production decisions. The framework allowed us to examine the effects of mental health grants on expenditures, wages, staff numbers, patient numbers, and output and to study the determinants of grant participation. Using regression analysis, the equations were estimated from the observations for 31 Oregon counties in fiscal year 1975-1976. Ordinary least squares was used in the expenditure and grant participation equations. Two-stage and three-stage least squares were used in the rest. Regressions were run for western and eastern Oregon counties when possible. For all observations, the major findings suggested that a dollar of state matching mental health aid per capita stimulated per capita mental health expenditures by $1.37, increased the professional staff by .556 to .762 persons per 10,000 county residents and increased average professional salaries by $2,173. A dollar of federal matching aid per capita appeared to have an expenditure effect of $1.03, an employment effect of .722, and no salary effect. A dollar of non-matching aid per capita had an estimated expenditure effect of $1.00, an estimated employment effect of .35, and no salary effect. In eastern Oregon, the major findings indicated that the marginal expenditure effect of federal aid was $1.41, the marginal expenditure effect of non-matching aid was $.96, and that state matching aid had no expenditure effect. In western Oregon, a dollar of state matching aid per capita had an estimated expenditure effect of $2.23, a professional employment effect of 1.25, and no significant salary effect. A dollar of non-matching aid per capita had an estimated expenditure effect of $1.67, and no significant employment or salary effects. In all regressions, the mental health grant estimates were not statistically different from one another. Finally, a production function for mental health services was unsuccessfully estimated and discussed.
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