AN ECONOMETRIC ANALYSIS OF A FEDERAL REVENUE-SHARING ALLOCATION FORMULA

allocated to state and local governments on the basis of population, poverty, and overcrowded housing. The degree to which these allocation criteria as well as other economic variables explain the proposed allocation of Federal funds is assessed. When the three variables in the formula were used to explain the variation in the distribution offunds among states, the results were poor because only about 33 % of the total variance was explained. Although the explanatory power of these three variables was considerably higher when SMSAs were employed as the unit of observa-tion, the empirical findings still indicated that (he allocation criteria proposed alone were relatively unimportant. Moreover, our results reveal that the formula explains little of the variationin per capita distribution of funds among either states or SMSAs, even after including other economic variables as allocation criteria. In conclusion, these findings imply that the proposed distribution of funds among both states and 1JJrge SMSAs fails to follow closely the requirements of the allocation formula set forth in the Better Communities Act. The approach employed here can be applied to. evaluate other distributions of Federal revenue-sharing funds according to specified criteriaofneed