Federal tax reform and the financing of state and local governments

Although the Reagan Administration tax reform proposals would reduce federal income tax liabilities for most taxpayers, federal tax reform would also create strong pressures on state and local governments to cut taxes and public services. These pressures would arise primarily because itemizers would no longer be able to deduct state and local taxes in determining their federal income tax liabilities. In New York City and Boston, it is likely that the Administration's tax reform would induce cuts in spending that range from 2.5 to 7.5 percent. While the elimination of state and local tax deductibility may promote allocative efficiency in the provision of local public goods, the cost would be a decline in the degree of redistribution through the state and local public sector, and a reduction in local public services for the poor.     

Status of PPBS in local and state governments in the United States

There have been widespread attempts to implement PPBS or at least some of its major concepts, in local and state governments beginning in 1965. The majority of this effort has focused around the development of the structural aspects, including statements of general objectives, development of program structures, and preparation of program budgets. The use of multi-year projections and improved output measurement has begun to gain interest. Recent progress, particularly in the latter, has been encouraging. However, progress in the undertaking of the type of program and policy analysis called for by PPBS has been slow with few exceptions. The lack of quality analytical staffs inside state and local governments has been perhaps the major obstacle.This paper is a revision of a paper prepared for the Department of Housing and Urban Development as a working paper for the Organization for Economic Cooperation and Development (OECD). The views expressed are those of the author and do not necessarily represent those of HUD, OECD, or The Urban Institute.     

The university and approaches to problems of state and local governments

There is a growing interest within universities in the operation of state and local governments, and in the services they provide. An example of this interest is the Program for Urban and Policy Sciences (UPS) at the State University of New York at Stony Brook.Since its inception two years ago, it has been the operating policy of the Program to direct its principal research activities to real and immediate problems facing state and local governments in the New York area. In each of the collaborative efforts undertaken with an outside agency, we have seen our role as that of both problem analysts and catalytic agents for bringing about change. This means our faculty and students actively participate in the policy formulation and policy implementation processes. A case study of a cooperative effort undertaken with the Environmental Protection Administration of New York City illustrates these ideas.We believe that a successful university program should combine research with real world experience; the university should encourage the faculty to broaden the scope of their activities; and students, particularly those from minorities, should be trained for professional careers as planning and program analysts.Work reported in this paper has been supported by the National Science Foundation under grant GI-5. A similar version of the paper was presented at the American Political Science Association Conference, September 6–11, 1971, Chicago, Illinois and at the ORSA Conference, October 28, 1971, Anaheim, California.     

Tax complexity and fiscal illusion

By using the Hirschman-Herfindahl index (HHC) the traditional approach to the tax complexity hypothesis introduces a restriction into the fiscal illusion model which has no theoretical foundation. We analyse the existing framework of the tax complexity hypothesis in detail and propose to capture this complexity through a Hannah and Kay index. We extend the theoretical framework by considering the expected return on investment in information. The empirical tests show that the HHC overestimates the importance of size inequalities between different taxes, while underestimating the impact of the number of taxes as a source of informational costs. The expected revenue hypothesis is not supported.     

Relations between central and local governments in Turkey: An historical perspective

As organizers of urban development in the modem sense, municipalities go back to the mid-19th century in Turkey. The main theme of this article is an analysis of the trends over roughly 150 years. Three main headings are used within this framework: (a) the political and administrative level; (b) the level of financial policies; (c) historical development of the relationship between the central and local governments with respect to the legal and institutional framework of urban planning. This relationship is fundamentally paternalistic and authoritarian. The study investigates the authenticity of the currently pronounced liberal policies and the subsequent implementation mechanisms devised by the present administration over the past 8 years. Although a change of government seems imminent, most of the policies implemented are considered to be irreversible. Emphasis is given to an assessment of the claim that liberal governments have introduced positive changes in this structural mechanism, rather than a normative evaluation of this structural relationship.     

浅论协调地方政府间横向关系

随着中央与地方关系改革的发展 ,地方政府间横向关系逐步得到发展 ;而在地方政府间横向关系发展中 ,由于种种原因导致的摩擦与矛盾产生了诸多负面影响 ;因此 ,必须采取措施对地方政府间横向关系加以协调     

Federal, state, and local governments: evaluating their separate roles in US growth

We use US county level data from 1970 to 1998 to explore the relationship between economic growth and government employment at three levels: federal, state and local. Increases in federal, state and local government employments are all negatively related to economic growth. We find no evidence that government is more efficient at lower levels. While we cannot separate out the productive and redistributive services of government, we document that the county-level income distribution became slightly more unequal from 1970 to 1998. We conclude that a release of government-employed labor inputs to the private sector would be growth-enhancing.     

On distinguishing between Leviathan and Public Interest governments in a federal state

The purpose of this paper is to derive testable implications for the proposition that provincial governments in a specific federal system are Leviathans, that is, revenue maximizers. The Leviathan model, associated with Brennan and Buchanan (1980) hypothesizes that governments behave like monopolies who seek to maximize their revenue. This model is contrasted with an alternative hypothesis, the Public Interest Theory. A theoretical model of a federal state, based on the Canadian system, is constructed and testable implications are derived. The principal feature of the model is that it is set in the context of a particular game involving the federal government, provincial governments and a consumer. In attempting to model this situation, care has been taken to try to incorporate as many institutional features of the Canadian federal system as possible, while still allowing the model to be somewhat parsimonious. With some modification, the model may be applicable to other countries with similar federal systems.     

Political characteristics, institutional procedures and fiscal performance: Panel data analyses of Norwegian local governments, 1991–1998

Abstract.  Budgeting can be understood as a common resource pool problem where spending agencies have incentives to encourage excessive levels of current spending and reduce budget surplus or create budget deficits. The political leadership is assumed to have an important role in keeping fiscal control and resisting the high-demanders' pressure for increased spending. Three factors of relevance for their success are investigated: political characteristics (political colour and political strength, the strength of relevant interest groups) and two institutional characteristics – committee structure and budgeting procedures. The analyses are based on panel data from up to 434 Norwegian municipalities in the period from 1991 to 1998. The results support the hypothesis that strong political leadership improves fiscal performance. The effect of interest groups is to a high degree community-specific. However, an increased share of elderly reduces fiscal surplus. Differences in budgetary procedures do not seem to affect fiscal performance. A strong committee structure seems, on the other hand, to result in better fiscal performance than a weaker one.     

Partnerships between local governments and community‐based organisations: exploring the scope for synergy

The utility of both local governments and community‐based organisations can be considerably enhanced when these agencies work in partnership with one another. Different roles will be played by local governments and community organisations in different types of partnership arrangements. Distinguishing among these roles helps allocate responsibilities better among the partner agencies, and it is also helpful for scheduling implementation, devising appropriate capacity building programmes and designing suitable accountability mechanisms. An analytical framework to help with these tasks is developed and presented in this article. Copyright © 2003 John Wiley & Sons, Ltd.     

Revisiting the (lack of) association between objective and subjective measures of local fiscal condition

Recent fiscal condition literature has been attentive to the consistency between subjective measures of local fiscal condition based on public officials' perceptions and their objective counterparts measured using financial data. Studies have found little evidence of a relationship between them, leading scholars to speculate flaws in measurement or intentional lack of association. This study reevaluates the issue by investigating intervening explanations for the absence of connection. Analyzing survey and audited financial data from 185 municipalities across 31 states, we identify various individual and organizational attributes that help clarify the association between the two types of fiscal condition measures.     

State fiscal constraint and local overrides: a regression discontinuity design estimation of the fiscal effects

Public Choice - Despite abundant evidence regarding the influence of US state-imposed tax and expenditure limitations on local governments, the causes and consequences of local overrides remain...     

Ranking state fiscal structures using theory and evidence

This paper offers unique rankings of the extent to which fiscal structures of U.S. states contribute to economic growth. The rankings are novel in two key respects: They are well grounded in established growth theory, in which the effect of taxes depends both on the level of taxes and on the composition of expenditures; and they are derived from actual estimates of the link between fiscal structures and economic growth. Estimates for the latter yield a growth hill, in which the incremental effect of taxes spent on productive services and infrastructure initially rises, reaches a peak, and then declines. Rankings derived from these estimates differ sharply from typical rankings based on levels of taxation alone. Two hypothetical policy experiments highlight both the growth‐hill effects of tax investments in productive services and infrastructure and the short‐ and long‐term tradeoffs in attempting to fund strong social services. © 2008 by the Association for Public Policy Analysis and Management.     

The political process and the use of debt financing by state governments

Empirical evidence offered in this study suggests that decisions by state government officials to effect debt-financed spending depend in part on the state's gubernatorial election cycle. More specifically, the results reveal relative increases in state debt issues in anticipation of elections, and furthermore, they reveal that such increases are more significant for states characterized by high interparty political competition. While theoretical limitations preclude a definitive explanation for these results, the evidence is consistent with a view of state political markets where incumbent parties manipulate public policy so as to enhance the probability of success in pending elections. This insight is significant in that it suggests a relationship between public policy decisions and election cycles in a context heretofore unexplored.     

The Democrat-Republican presidential growth gap and the partisan balance of the state governments

Public Choice - It is known that the US economy has grown faster during Democrat presidencies, but the Democrat-Republican presidential GDP growth gap cannot be attributed fully to policy...     

Tax decentralization and local government size

This paper investigates the relationship between fiscal federalism and the sizes of local governments. While many empirical studies emphasized that grants encourage the growth of local public spending and local taxes constrain it, they are more silent regarding the effects of different types of tax autonomy. The paper addresses this issue by arguing that tax decentralization as organized on tax bases used only by local governments (tax-separation), rather than on tax-base sharing, would restrain local public expenditures. Using an unbalanced panel of OECD countries, the key finding is that only property taxes—mostly based on a “tax-separation” scheme—seem to favor smaller local governments. Thus, while tax decentralization is a necessary condition for limiting the growth of local governments, it does not appear sufficient, as tax-separation schemes among government levels would in fact be required.     

Economic and political determinants of fee income in Norwegian local governments

This paper presents an empirical analysis of the determinants of fee income in Norweigan local governments. The point of departure is a representative voter model emphasizing the effects of pure economic variables. The benchmark model is extended by including two aspects of the political system: ideology and strength. It is evident that increased socialist influence increases the size of the local public sector, while a strong political leadership has an advantage in opposing pressure to increase spending.