Federal Assistance and Local Services in the United States: the Evolution of a New Federalist Fiscal Order

60 Pages Posted: 19 Jul 2004 Last revised: 7 Oct 2021

See all articles by Robert P. Inman

Robert P. Inman

University of Pennsylvania - Finance Department; National Bureau of Economic Research (NBER)

Date Written: June 1987

Abstract

The federalist fiscal structure of the United States has been evolving steadily towards the centralization of the financing of government services and transfers. Revenues are raised centrally and then transferred, via grants-in-aid, to state and local governments. This paper seeks to explain this movement towards centralized financing. Two alternative hypotheses are examined. The first--that aid is allocated to correct market or political failures in the local public economy or to equalize the provision of meritorious local public goods--generally fails to account for the distribution of federal aid over the past thirty years. The second hypothesis--that aid is allocated to ease the fiscal pressure in the state- local sector when, and only when, it is in the political interests of Congressional representatives to do so--is supported by the recent data. Our current system of federal grants to state and local governments is a logical outcome of a Congressional budget process that rewards the centralized financing and the localized provision of public good and services.

Suggested Citation

Inman, Robert P., Federal Assistance and Local Services in the United States: the Evolution of a New Federalist Fiscal Order (June 1987). NBER Working Paper No. w2283, Available at SSRN: https://ssrn.com/abstract=347056

Robert P. Inman (Contact Author)

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