Helping hand or centralizing tool? The politics of conditional grants in Australia, Canada, and the United States

Conditional grant programs are widely used in federal systems to address the tension between decentralized policy provision and territorial equity, given constraints on constituent units' ability to raise revenues. While enhancing their financial capacity, conditional grants are often seen as reducing constituent units' policy autonomy. Against this backdrop, this article examines the actual impact conditional grants have on the capacity and autonomy of a constituent unit. We analyze key milestones in the genesis and evolution of conditional grant programs in education and healthcare in Australia, Canada, and the United States. We find that the impact of conditional grants primarily depends on constituent units' size, fiscal capacity, and distinctiveness.

Conditional grants are most beneficial to smaller and/or fiscally weaker constituent units but highly distinctive units suffer the most significant autonomy losses. If they are not to exacerbate centralization, conditional grants programs thus need to be sensitive to the preferences of the more distinctive constituent units.