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Fiscal Relations Across Levels of Government in the United States

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  • Thomas Laubach

Abstract

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). Les relations budgétaires entre les différents niveaux d'administration aux États-Unis On fera le point dans cet article sur les relations budgétaires entre l’État fédéral, les États fédérés et les collectivités locales tout en examinant les mesures qui pourraient être prises pour améliorer ces relations. La large autonomie budgétaire des États et, dans une moindre mesure, des collectivités locales, a eu plusieurs effets bénéfiques, en particulier la réactivité des dépenses publiques aux préférences locales et une responsabilité relativement étendue du fait du lien étroit entre les prérogatives fiscales et les obligations de dépenses. Ce lien reflète traditionnellement le faible rôle de la redistribution entre les collectivités territoriales. Les subventions fédérales aux administrations infranationales sont accordées en fonction d’objectifs d’efficience ou de préoccupations à caractère paternaliste et sont donc toujours préaffectées. La décentralisation des programmes au niveau des États, en particulier pour la protection sociale, s’est révélée très fructueuse en favorisant l’innovation dans la conception des mesures, mais les coûts sont tels pour les soins de santé en faveur des catégories défavorisées qu’une plus forte participation fédérale pourrait être nécessaire. L’érosion des bases d’imposition, notamment pour l’impôt sur les sociétés et pour la taxe sur les ventes, compromet une collecte efficiente des recettes des États. On pourrait inverser cette tendance en substituant à ces impôts une forme de taxation indirecte qui créerait moins de distorsions. Enfin, l’obligation d’équilibre budgétaire au niveau des États paraît avoir été salutaire, mais les règles de discipline budgétaire sous leurs formes les plus extrêmes ont entravé la fourniture, par les États et les collectivités locales Ce document de travail se rapporte à l'Étude économique de l'OCDE des États-Unis 2005 (www.oecd.org/eco/etudes/us).

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Bibliographic Info

Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 462.

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Date of creation: 29 Nov 2005
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Handle: RePEc:oec:ecoaaa:462-en

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Keywords: grants; tax and expenditure limitations; welfare reform; Medicaid; state and local taxes; balanced budget requirements; fiscal federalism; fiscal rules; subvention; Medicaid; impôts des Etats et des collectivités locales; règles de discipline budgétaire; obligation d'équilibre budgétaire; fédéralisme budgétaire; réforme de la protection sociale; plafonds d'impôts et de dépenses;

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Cited by:
  1. Beata Guziejewska, 2014. "Intergovernmental Fiscal Relations. Theoretical Aspects And Poland’S Experience," "e-Finanse", University of Information Technology and Management, Institute of Financial Research and Analysis, vol. 9(3), pages 24-32, January.
  2. Hansjörg Blöchliger & José Maria Pinero Campos, 2011. "Tax Competition Between Sub-Central Governments," OECD Working Papers on Fiscal Federalism 13, OECD Publishing.
  3. Hansjörg Blöchliger & Claire Charbit, 2008. "Fiscal equalisation," OECD Journal: Economic Studies, OECD Publishing, vol. 2008(1), pages 1-22.
  4. Vladimir Gligorov & Adalbert Knöbl & Maciej Krzak, 2006. "Monthly Report No. 4/2006," wiiw Monthly Reports 2006-04, The Vienna Institute for International Economic Studies, wiiw.

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