Preheat oven to 350 degrees. Line or grease baking sheets and set aside.
Combine flour, nutmeg, baking powder, and salt. Set aside.
Beat butter and 1/3 C. sugar until creamy. Add egg and vanilla. Stir in dry ingredients until smooth and just combined. Do not over-stir or the dough will become crumbly.
Mix together cinnamon and 2 Tbs. of sugar. Pinch dough into walnut-sized pieces and roll into balls. Roll each ball in cinnamon/sugar mixture, and place on baking sheets.
Bake for 12 to 15 minutes, or until golden brown. Cool on baking sheets for one minute, then cool completely on a wire rack.