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Fiscal Relations Across Levels of Government in the United States

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Thomas Laubach ()

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

Find related papers by 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

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This page was last updated on 2008-11-17.

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