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The Rise of the States: U.S. Fiscal Decentralization in the Postwar Period

In: Fiscal Federalism

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  • Katherine Baicker
  • Jeffrey Clemens
  • Monica Singhal

Abstract

One of the most dramatic changes in the fiscal federalism landscape during the postwar period has been the rapid growth in state budgets, which almost tripled as a share of GDP and doubled as a share of government spending between 1952 and 2006. We argue that the greater role of states cannot be easily explained by changes in Tiebout forces of fiscal competition, such as mobility and voting patterns, and are not accounted for by demographic or income trends. Rather, we demonstrate that much of the growth in state budgets has been driven by changes in intergovernmental interactions. Restricted federal grants to states have increased, and federal policy and legal constraints have also mandated or heavily incentivized state own-source spending, particularly in the areas of education, health and public welfare. These outside pressures moderate the forces of fiscal competition and must be taken into account when assessing the implications of observed revenue and spending patterns.
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Suggested Citation

  • Katherine Baicker & Jeffrey Clemens & Monica Singhal, 2010. "The Rise of the States: U.S. Fiscal Decentralization in the Postwar Period," NBER Chapters,in: Fiscal Federalism, pages 1079-1091 National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberch:13336
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    Cited by:

    1. Philippe Jehiel & Laurent Lamy, 2018. "A Mechanism Design Approach to the Tiebout Hypothesis," Journal of Political Economy, University of Chicago Press, vol. 126(2), pages 735-760.
    2. Calin Arcalean & Ioana Schiopu, 2016. "Inequality, opting-out and public education funding," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 46(4), pages 811-837, April.
    3. repec:ucp:tpolec:doi:10.1086/697140 is not listed on IDEAS
    4. Lukas Mergele & Michael Weber, 2017. "Public employment services under decentralization: evidence from a natural experiment," Working Papers 2017002, Berlin Doctoral Program in Economics and Management Science (BDPEMS).
    5. Jeffrey Clemens & Benedic Ippolito, 2017. "Implications of Medicaid Financing Reform for State Government Budgets," NBER Chapters,in: Tax Policy and the Economy, Volume 32 National Bureau of Economic Research, Inc.
    6. Jeffrey Clemens, 2015. "Regulatory Redistribution in the Market for Health Insurance," American Economic Journal: Applied Economics, American Economic Association, vol. 7(2), pages 109-134, April.
    7. Sylvain Leduc, 2015. "Are State Governments Roadblocks to Federal Stimulus? Evidence from Highway Grants in the 2009 Recovery Act," 2015 Meeting Papers 1020, Society for Economic Dynamics.
    8. Benjamin A. Olken & Junko Onishi & Susan Wong, 2014. "Should Aid Reward Performance? Evidence from a Field Experiment on Health and Education in Indonesia," American Economic Journal: Applied Economics, American Economic Association, vol. 6(4), pages 1-34, October.
    9. Jeffrey Clemens & Joshua D. Gottlieb, 2017. "In the Shadow of a Giant: Medicare’s Influence on Private Physician Payments," Journal of Political Economy, University of Chicago Press, vol. 125(1), pages 1-39.
    10. Boadway, Robin & Tremblay, Jean-François, 2012. "Reassessment of the Tiebout model," Journal of Public Economics, Elsevier, vol. 96(11), pages 1063-1078.
    11. Hoynes, Hilary W. & Luttmer, Erzo F.P., 2011. "The insurance value of state tax-and-transfer programs," Journal of Public Economics, Elsevier, vol. 95(11), pages 1466-1484.
    12. Jeffrey Clemens, 2016. "Redistribution through Minimum Wage Regulation: An Analysis of Program Linkages and Budgetary Spillovers," Tax Policy and the Economy, University of Chicago Press, vol. 30(1), pages 163-189.
    13. Jia, Junxue & Guo, Qingwang & Zhang, Jing, 2014. "Fiscal decentralization and local expenditure policy in China," China Economic Review, Elsevier, vol. 28(C), pages 107-122.
    14. Lukas Mergele, 2016. "Are there gains from decentralizing public employment offices?," Working Papers 2015020, Berlin Doctoral Program in Economics and Management Science (BDPEMS).
    15. repec:spr:empeco:v:53:y:2017:i:2:d:10.1007_s00181-016-1123-3 is not listed on IDEAS
    16. Teresa Garcia-Milà & Therese J. McGuire & Wallace E. Oates, 2017. "Strength in diversity? Fiscal federalism among the fifty U.S. states," Economics Working Papers 1586, Department of Economics and Business, Universitat Pompeu Fabra.
    17. repec:aea:aejpol:v:9:y:2017:i:2:p:253-92 is not listed on IDEAS
    18. repec:aea:aejpol:v:10:y:2018:i:2:p:39-61 is not listed on IDEAS
    19. Hyungon Kim & Chang Kwon, 2015. "The Effects of Fiscal Consolidation and Welfare Composition of Spending on Electoral Outcomes: Evidence from US Gubernatorial Elections between 1978 and 2006," New Political Economy, Taylor & Francis Journals, vol. 20(2), pages 228-253, April.
    20. Daniele Coen-Pirani, 2016. "Fiscal Centralization: Theory and Evidence from the Great Depression," 2016 Meeting Papers 783, Society for Economic Dynamics.
    21. Sylvain Leduc & Daniel Wilson, 2017. "Are State Governments Roadblocks to Federal Stimulus? Evidence on the Flypaper Effect of Highway Grants in the 2009 Recovery Act," American Economic Journal: Economic Policy, American Economic Association, vol. 9(2), pages 253-292, May.

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