OECD Economics Department Working Papers

ISSN :
1815-1973 (online)
DOI :
10.1787/18151973
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Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

 

Fiscal Relations Across Levels of Government in the United States You or your institution have access to this content

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Author(s):
Thomas Laubach
Publication Date
29 Nov 2005
Bibliographic information
No.:
462
Pages
53
DOI
10.1787/685856031230

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This paper discusses the current state of fiscal relations between the federal, state and local governments in the United States and suggests directions for improvement. The significant degree of fiscal autonomy of the states and, to a lesser extent, of local governments has had several beneficial effects, including the responsiveness of public expenditure to local preferences and the comparatively high degree of accountability through the close link between revenue-raising powers and expenditure assignments. This link reflects traditionally weak support for redistribution across jurisdictions. Grants from the federal to sub-national governments are focused on achieving aims of an efficiency or paternalistic nature and are therefore all earmarked. Programme devolution to the states, notably in the welfare area, has been remarkably successful in fostering innovation in programme design, but the cost pressures in health care for the indigent are such that greater federal involvement might become necessary. The efficiency with which states raise revenues has been compromised by the erosion of their tax bases, notably for corporate income and sales taxes. Replacing these taxes with a less distorting form of indirect taxation could reverse this trend. Finally, state balanced budget requirements appear to have had salutary effects, but more extreme forms of fiscal rules have reduced state and local governments' ability to provide the desired level of public goods. This Working Paper relates to the 2005 OECD Economic Survey of the United States (www.oecd.org/eco/surveys/us).
Keywords:
balanced budget requirements, welfare reform, fiscal rules, fiscal federalism, grants, tax and expenditure limitations, state and local taxes, Medicaid
JEL Classification:
  • H23: Public Economics / Taxation, Subsidies, and Revenue / Externalities; Redistributive Effects; Environmental Taxes and Subsidies
  • H51: Public Economics / National Government Expenditures and Related Policies / Government Expenditures and Health
  • H52: Public Economics / National Government Expenditures and Related Policies / Government Expenditures and Education
  • H53: Public Economics / National Government Expenditures and Related Policies / Government Expenditures and Welfare Programs
  • H71: Public Economics / State and Local Government; Intergovernmental Relations / State and Local Taxation, Subsidies, and Revenue
  • H72: Public Economics / State and Local Government; Intergovernmental Relations / State and Local Budget and Expenditures
  • H74: Public Economics / State and Local Government; Intergovernmental Relations / State and Local Borrowing
  • H77: Public Economics / State and Local Government; Intergovernmental Relations / Intergovernmental Relations; Federalism; Secession