The research reported in this paper quantifies the impact of federal aid in the financing of local public schools. The specific question addressed is: What is the dollar-for-dollar response of state aid disbursements to the flow of federal aid dollars? The first section of the paper briefly considers the incentive created by existing federal aid flows when they are viewed as intergovernmental grants. To estimate the response to these incentives, a set of equations explaining interstate variations in state school aid to local school districts is used. The data used are for all states for the 1973-74 through 1975-76 school years. The statistical results are presented in the second section. The final section discusses policy issues and the need for further research. Statistical equations and detailed data sources are included in two appendixes. Three tentative conclusions are drawn: that federal categorical aid for specified purposes and populations is stimulative of additional state disbursements of general and categorical aid; that federal impact aid affects state aid in a negative way; and that other socioeconomic and demographic variables are important determinants in the amount of state aid distributed for school services. (Author/IRT)