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Measuring fiscal disparities across the U. S. states: a representative revenue system/representative expenditure system approach, fiscal year 2002

Author

Listed:
  • Sonya Hoo
  • Matthew Nagowski
  • Kim Rueben
  • Robert Tannenwald
  • Yesim Yilmaz

Abstract

States and their local governments vary both in their needs to provide basic public services and in their abilities to raise revenues to pay for those services. A joint study by the Tax Policy Center and the New England Policy Center at the Federal Reserve Bank of Boston uses the Representative Revenue System (RRS) and the Representative Expenditure System (RES) frameworks to quantify these disparities across states by comparing each state?s revenue capacity, revenue effort, and necessary expenditures to the average capacity, effort, and need in states across the country for fiscal year 2002. ; The fiscal capacity of a state is the state?s revenue capacity relative to its expenditure need. A state with low fiscal capacity has a relatively small revenue base, a relatively high need for expenditures, or?as is often the case?a combination of both. ; The New England and Mid-Atlantic states tend to have high revenue capacity and low expenditure needs compared to the national average. Thus, states in these two regions tend to have high fiscal capacity, or a relatively high capability to cover their expenditure needs using own resources. South Central states, on the other hand, have low fiscal capacity?that is, a low level of revenue-raising capacity given what it would cost to provide a standard set of public services to their citizens. ; Little relation exists between the amount of federal aid received by states and their fiscal capacity; federal money is not primarily distributed to offset differences in the ability to raise revenues or provide services. Given the current level of federal funds allocated to state and local governments, 91 percent of the gap between revenue capacity and expenditure need across the states could be covered if federal funds were reallocated.

Suggested Citation

  • Sonya Hoo & Matthew Nagowski & Kim Rueben & Robert Tannenwald & Yesim Yilmaz, 2006. "Measuring fiscal disparities across the U. S. states: a representative revenue system/representative expenditure system approach, fiscal year 2002," New England Public Policy Center Working Paper 06-2, Federal Reserve Bank of Boston.
  • Handle: RePEc:fip:fedbcw:06-2
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    References listed on IDEAS

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    1. Robert Tannenwald, 1998. "Come the devolution, will states be able to respond?," New England Economic Review, Federal Reserve Bank of Boston, issue May, pages 53-73.
    2. Robert Tannenwald & Nick Turner, 2004. "Interstate fiscal disparity in state fiscal year 1999," Public Policy Discussion Paper 04-9, Federal Reserve Bank of Boston.
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    Cited by:

    1. Jason Delaney, 2019. "Comparing Apples to Apples: Estimating Fiscal Need in the United States with a Regression-Based Representative Expenditure Approach," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 47(3), pages 311-322, September.
    2. Jeffrey M. Kulik & Natalia Ermasova, 2018. "Tax Expenditure Limitations (TELs) and State Expenditure Structure in the USA," Public Organization Review, Springer, vol. 18(1), pages 53-69, March.
    3. Saeid Mahdavi & Joakim Westerlund, 2017. "Are state–local government expenditures converging? New evidence based on sequential unit root tests," Empirical Economics, Springer, vol. 53(2), pages 373-403, September.
    4. Bellofatto, Antonio Andrés & Besfamille, Martín, 2018. "Regional state capacity and the optimal degree of fiscal decentralization," Journal of Public Economics, Elsevier, vol. 159(C), pages 225-243.
    5. Mahdavi, Saeid & Westerlund, Joakim, 2018. "Subnational government tax revenue capacity and effort convergence: New evidence from sequential unit root tests," Economic Modelling, Elsevier, vol. 73(C), pages 174-183.
    6. Margaret Chitiga-Mabugu & Nara Monkam, 2013. "Assessing Fiscal Capacity at the Local Government Level in South Africa," Working Papers 201376, University of Pretoria, Department of Economics.
    7. Owyang, Michael T. & Zubairy, Sarah, 2013. "Who benefits from increased government spending? A state-level analysis," Regional Science and Urban Economics, Elsevier, vol. 43(3), pages 445-464.
    8. Timothy J. Bartik, 2009. "How Policymakers Should Deal with the Delayed Benefits of Early Childhood Programs," Upjohn Working Papers and Journal Articles 09-150, W.E. Upjohn Institute for Employment Research.

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    Keywords

    Local government; Local finance; State finance; Taxation;
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