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Federal Assistance and Local Services in the United States: The Evolution of a New Federalist Fiscal Order

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  • Robert P. Inman

Abstract

The federalist fiscal structure of the United States has been evolving steadily towards the centralization of the financing of government services and transfers. Revenues are raised centrally and then transferred, via grants-in-aid, to state and local governments. This paper seeks to explain this movement towards centralized financing. Two alternative hypotheses are examined. The first--that aid is allocated to correct market or political failures in the local public economy or to equalize the provision of meritorious local public goods--generally fails to account for the distribution of federal aid over the past thirty years. The second hypothesis--that aid is allocated to ease the fiscal pressure in the state- local sector when, and only when, it is in the political interests of Congressional representatives to do so--is supported by the recent data. Our current system of federal grants to state and local governments is a logical outcome of a Congressional budget process that rewards the centralized financing and the localized provision of public good and services.

Suggested Citation

  • Robert P. Inman, 1987. "Federal Assistance and Local Services in the United States: The Evolution of a New Federalist Fiscal Order," NBER Working Papers 2283, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:2283
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    1. Robin W. Boadway & Frank R. Flatters, 1982. "Efficiency and Equalization Payments in a Federal System of Government: A Synthesis and Extension of Recent Results," Canadian Journal of Economics, Canadian Economics Association, vol. 15(4), pages 613-633, November.
    2. Robert P. Inman & David J. Albright, 1987. "Central Policies for Local Debt: The Case of Teacher Pensions," NBER Working Papers 2166, National Bureau of Economic Research, Inc.
    3. Kenneth J. Arrow, 1971. "A Utilitarian Approach to the Concept of Equality in Public Expenditures," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 85(3), pages 409-415.
    4. Barlow, Robin, 1970. "Efficiency Aspects of Local School Finance," Journal of Political Economy, University of Chicago Press, vol. 78(5), pages 1028-1040, Sept.-Oct.
    5. Craig, Steven G & Inman, Robert P, 1982. "Federal Aid and Public Education: An Empirical Look at the New Fiscal Federalism," The Review of Economics and Statistics, MIT Press, vol. 64(4), pages 541-552, November.
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    Cited by:

    1. Richard G. Frank & Martin Gaynor, 1995. "Incentives, Optimality, and Publicly Provided Goods: the Case of Mental Health Services," Public Finance Review, , vol. 23(2), pages 167-192, April.
    2. Teferi Mergo & Alain-Desire Nimubona & Horatiu Rus, 2019. "Political Representation and the Provision of Public Goods: Theory and Evidence from Ethiopia," Working Papers 1901, University of Waterloo, Department of Economics, revised Jan 2019.
    3. Alberto Sole Olle, 1998. "The effects of tax deductibility on the mix of property taxes and use charges: an empirical analysis of the spanish case," Working Papers in Economics 41, Universitat de Barcelona. Espai de Recerca en Economia.

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