Deciding to Provide: Local Decisions on Providing Social Welfare

Fiscal federalism predicts local governments will avoid social welfare expenditures, owing to capital mobility across local jurisdictions. Yet Census of Governments data consistently show that many local governments provide one or more social welfare functions, and moreover many jurisdictions provide these functions without federal or state intergovernmental support. This article finds evidence that, while local expenditures are largely driven by fiscal capacity and federal and state assistance, local decisions on providing social welfare functions and participating in intergovernmental revenues are primarily affected by degree of capital mobility and by local political factors. Consequently, local governments exercise much greater autonomy over social welfare policymaking than fiscal federalism suggests.     

转移支付对地方财政收入稳定效应的实证分析——基于中国省市县三级面板数据

从理论上讲,政府间转移支付可以作为稳定政策工具发挥作用。尤其自1994年以来,中央对地方的转移支付已成为地方各级政府重要的财政收入来源,然而,对于转移支付在财政收入稳定性方面发挥的作用,无论是政策制定者和学术研究者均没有注意到。为此,本文利用1993-2005年中国7个省861个县（区）的财政面板数据,把偏离趋势值变动的比率作为因变量,运用固定效应模型和Prais-Winsten模型或者Cochrane-Oreutt模型,实证分析了转移支付对省、市、县（区）财政收入稳定效应。实证结果表明转移支付对省、市、县（区）财政收入有较大的拉动作用,而且当财政收入处于下降阶段时,转移支付的稳定效应更加明显。所以,有必要重新反思政府间转移支付的目标,将其稳定作用纳入政策制订目标和实施效果的考虑范围,并考虑把转移支付作为稳定地方财政的一种政策工具。     

The Flypaper Effect: Evidence from India

The flypaper effect refers to the phenomenon whereby expenditure stimulus from unconditional grants exceeds that from an equivalent increase in income. The flypaper effect has been described as "money sticks where it hits." The present study empirically tests the flypaper effect for the Indian economy. The study also tests the asymmetry hypothesis that looks at the impact of retrenchment in grants. Results obtained in the present study show the flypaper effect to be vindicated. We find that both capital and revenue expenditures receive a greater stimulus from grants than would an increase in income. Results show that in the prereform period both revenue and capital expenditures are maintained during periods of grant cuts. However, in the postreform period it is only expenditures on revenue accounts that are maintained in periods of grant reduction. We also find that during periods of grant reduction, state governments maintain their expenditure programs by raising their own tax revenue. This suggests that grants from the center have had a disincentive effect and could be a reason that state governments have not exploited their tax potential to the fullest. By bringing to the fore the disincentive effect of grants we wish to emphasize the urgency of taking a closer look at restructuring and redesigning our system of intergovernmental transfers.     

Intergovernmental Structure and Fiscal Management Strategies: A Crossnational Analysis

Does intergovernmental structure have a systematic effect on the impacts of local governments' fiscal policy responses? Using empirical data from more than 800 local governments in five countries, the article concludes that intergovernmental structure is associated with the impact attributed to various fiscal management strategies. Such strategies have generally had greater impact in local governments in federal systems than those in unitary state systems. There are similarities between federal and unitary local governments regarding the fiscal management strategies that have least impact, and both types stress the importance of productivity gains via technology. But the differences in relative importance and level of impact are more striking than the similarities. In particular, fiscal management strategies involving the relations of the local government with other governments, such as obtaining intergovernmental revenue and shifting service provision to other governments, have greater impact in significantly more federal systems than in unitary state systems. These federal local governments also experience greater impacts from increasing user charges and raising local taxes. In contrast, local governments in unitary state systems place greater reliance on the more politically expeditious strategy of across–the–board expenditure reductions and on reductions of capital spending. These findings suggest that local governments in more decentralized systems have greater flexibility to manipulate relations with other governments in order to enhance their own fiscal situation. The data also suggest that the government's level of fiscal stress is not systematically associated with the level of impact from most fiscal management strategies, especially in the unitary state systems.     

State Policies Affecting Cities and Counties in 1992

Most states did not make major changes in their policies affecting cities and counties in 1992. California and Maryland are the two leading exceptions. As many states continued to experience fiscal stress, fourteen states cut aid to local governments, while ten states increased aid. Some important changes also occurred in local revenue authority, sorting out responsibilities, and restrictions on unfunded mandates.     

How gubernatorial budgetary power and interest groups affect vertical fiscal imbalances in the US states: Focusing on fiscal centralization and decentralization

This study empirically examines the roles of gubernatorial budgetary power and interest groups in vertical fiscal imbalances across US states via a two-step generalized method of moments estimation during a 22-year period (1987–2008). States' share of intergovernmental transfers and the local share of intergovernmental transfers are often affected by interaction between governors and interest groups, as are expenditure centralization and revenue/expenditure centralization. Revenue decentralization and the local share of intergovernmental transfers are frequently influenced by cooperation between governors and interest groups via mutual support. Long-term cooperation and gridlock each influence expenditure centralization, revenue/expenditure centralization, and revenue decentralization. Long-term cooperation is not statistically significant in terms of the state and local shares of intergovernmental transfers; that is, governors and interest groups cooperate in pursuit of short-term benefits rather than long-term results. Long-term political influence also has no impact, affirming a short-term-oriented political viewpoint.     

Coercive Federalism and the Search for Constitutional Limits

This article explores several constitutional bases for questioningthe federal government's use of unfunded mandates and otherforms of coercive intergovernmental regulation. The "anti-coercion"and "anti-commandeering" principles of the Tenth Amendment areproposed as general arguments against these forms of regulation.The constitutional requirement of "uniformity" attached to indirecttaxation, the "anti-discrimination rule" in the area of intergovernmentaltax immunity, and the "equality rule", which stems from theunwritten tradition of maintaining equality among the states,are developed as additional bases for striking down federallaws that distribute mandate burdens disproportionately amongthe states.     

The cartelization of local governments

Intergovernmental competition can enhance efficiency. Centralization of government expenditures inhibits intergovernmental competition because it makes governments more homogeneous, and so cartelizes local governments. Cartelization reduces Tiebout competition, and limits benchmark competition in which one government??s performance can be compared with neighboring governments. Measuring fiscal centralization as the ratio of local to state and local government expenditures within the state, the evidence shows that more fiscal decentralization is associated with higher levels of state per capita income. Cartelization of local governments negatively impacts income.     

The robustness of quadratic voting

Combining local council election data with fiscal data on grant allocations in a German state, we study partisan favoritism in the allocation of intergovernmental transfers within a quasi-experimental framework. We hypothesize that state governments pursue two distinct goals when allocating grants to local governments: (1) helping aligned local parties win the next election and (2) buying off unaligned municipalities that may obstruct the state government’s policy agenda. We argue furthermore that the relative importance of these two goals depends on local political conditions. In line with this argument, we show empirically that the effect of political alignment on grant receipts varies depending on the degree of local support for the state government. While previous contributions find that aligned local governments always tend to receive larger transfers, our results imply that the political economy of intergovernmental transfers is more intricate.     

Life at the Bottom of the Fiscal Food Chain: Examining City and County Revenue Decisions

Any shifting of responsibilities from the state or federal governmentsto local governments would fall mostly on the shoulders of general-purposegovernments, namely, cities (municipalities) and counties. Thisstudy explores city and county revenue decisions associatedwith general funds—the governmental fund most likely tobe affected by state requirements for greater local financingresponsibility for new or devolved programs. The results suggestthat state control over local revenue authority affects decisionsregarding the imposition of financial burdens on residents,and that intergovernmental aid to cities and counties does notnecessarily mitigate those burdens. Despite evidence of healthyfinancial reserves, especially for cities, shifting responsibilitiesfrom the state to city or county governments could place citiesand counties in difficult fiscal positions. Given the importanceof own-source revenues to current budgets, and in view of thequestionable impact of intergovernmental aid on city and countyresidents' revenue burdens, questions persist about the abilityof city and county governments to maintain (and, if necessary,to expand) services during economic recession.     

Urban local government finance in Nigeria: The case of Lagos municipal area

One of the most important results of the global reform of local governments in Nigeria in 1976 was to initiate a progressive increase in the amount of monetary transfers to local governments (LGs) by federal and state governments (especially the former). The proportion of federally collected revenues devoted to LGs increased rapidly from less than 2 per cent in 1976 to 15 per cent in 1990. This has enabled Nigerian LGs to play a more visible role in total public expenditures. On the other hand, huge federal transfers have led to sharp declines in absolute and relative terms in locally generated revenues. The two Lagos municipalities are able to generate up to 50 per cent of their total revenues. In contrast, the average for all local governments in the country is 4–5 per cent. The relatively large internal revenue sources in the two Lagos municipalities results in generous surpluses, which they are able to channel into capital development or special project expenditures. The single most important internal revenue source is the property tax, which is not even collected in some other large cities, such as Kano, Ogbomosho and Sokoto.     

Is small beautiful? Village level taxation of natural resources in Tanzania

This article examines collection of natural resources revenue by village governments in Tanzania as part of a decentralisation reform. An analysis of empirical data in the form of taxation records from 14 villages, which collect and retain revenues on natural resources utilisation suggests that decentralising revenue collection to the lowest local government tier may yield: (i) considerable increases in revenue collection; (ii) increased transparency in public finances through requirements that village governments document their incomes and expenditures to the villagers; and (iii) a financial surplus that is used to finance public services at the village level. The evidence presented in this article suggests that decentralising taxation to the lowest local government tier may be a viable approach to enhance revenue collection on the utilisation of relatively low value natural resources, and assure that a share of the collected revenue is used to finance public services. Copyright © 2007 John Wiley & Sons, Ltd.     

How Municipal Property Tax Responded to State Aid Cuts: The Case of Massachusetts Municipalities in the Post‐2001 Fiscal Crisis

This empirical study examines municipal property tax responses to state aid cuts during the post‐2001 fiscal crisis. Using panel econometric techniques on annual changes in property tax levy by 351 incorporated Massachusetts municipalities in the period of 2002–2006, the results suggest that municipal governments offset about 9 cents of each dollar of net state aid cut through the increase of their property tax rates. It contributes to public finance literature on the extent to which local property tax can be used to stabilize municipal revenues when the intergovernmental revenue shrinks.     

State Policies Affecting Cities and Counties in 1991: Shifting Federalism

States experienced considerable fiscal distress in 1991 as the recession led to widespread revenue shortfalls. In this environment, discretionary spending did not fare well. This article discusses five major policy areas: (1) state financial aid; (2) major changes in the "sorting out" of responsibilities between the state and local governments; (3) revenue diversification; (4) changes in limitations imposed on local taxes; and (5) new mandates handed down to cities and counties.     

The Federal Role in State Fiscal Stress

This article examines the extent to which the federal government'spolicies were responsible for the fiscal stress experiencedby most state governments in the early 1990s. Federal policieshave contributed considerably to recent state fiscal stress,particularly through the Medicaid program—the fastestgrowing part of state budgets—and the recession, whichdepressed revenue and increased welfare and Medicaid spending.Federal aid reductions have not been an important source ofrecent state fiscal stress. The real value of per capita federalaid other than for welfare programs fell considerably in the1980s, but the reductions were much greater for local governmentsthan for states. The largest reductions were in the early 1980s.Federal policies have affected state finances in several otherways—through tax policy, unfunded mandates, and the federalfailure to cope effectively with problems like health and poverty.Federal court rulings have also caused budget problems (as havestate court decisions). In some respects, state fiscal problemsare not a federal responsibility. Rising school enrollments,new corrections policies, and inelastic tax systems have createdfiscal stress for many states. Excessive state spending in the1980s has contributed to recent fiscal problems in some states,but not generally.     

Can State Review of Local Planning Increase Housing Production?

Abstract

To increase housing production and make the distribution of affordable housing more equitable, several states subject local land use planning to review by state agencies or courts. Focusing an empirical analysis on California, this article considers the potential efficacy of these reviews in contributing to the overall supply of housing. Past studies of other intergovernmental mandates suggest that their institutional design helps determine their success.

A comparison of four states indicates that approaches differ considerably in how they determine local housing needs, evaluate local efforts prospectively or retrospectively, and penalize noncompliance. California's housing element law, which mandates prospective local planning for quantifiable housing goals, gives state staff the power to review local plans for compliance with statutory requirements. However, multivariate analysis indicates that the compliance status of California municipalities in 1994 did not predict the number of single‐family or multifamily housing permits issued from 1994 to 2000.     

Intergovernmental transfers and fiscal equalization across the north-eastern states of India: Evidence from panel data

While numerous studies have tried to analyze the impact of intergovernmental transfers in fostering fiscal equalization in India, there need to be more studies in the context of north-eastern (NE) states. Situating in a geographically isolated and economically backward region, the states of NE India depend heavily on central fiscal transfers to meet expenditures and to promote various economic activities in the region. One of the essential objectives of these transfers is to achieve fiscal equity. Hence, the study attempts to analyze the fiscal equalizing nature of the intergovernmental transfers across NE India during 1991–2019. The coefficient of variation (CV) analysis results indicates that although fiscal transfers reduced the magnitude of disparity in the own-source revenue across the NE states, a significant amount of disparity still exists in the resource base across these states. The regression analysis findings suggest that the transfers across these states need to be more fiscal equalizing. The per capita gross state domestic product emerges as a positive and significant in predicting per capita transfers, and hence it questions the progressivity of central transfers. When assigning the interstate share of transfers, more weight should be placed on fiscal equalizing factors such as per capita income. The Finance Commission of India should emphasize fiscal equalizing criteria when allocating weights and recommending transfers to the NE States. Additionally, states with low incomes should be recognized in plan schemes.     

Coercive versus cooperative policies: Comparing intergovernmental mandate performance

Cooperative policies hold out promise of an improvement over coercive mandates as ways to enhance implementation of intergovernmental programs. By treating subordinate governments as regulatory trustees and emphasizing substantive compliance, the cooperative mandates avoid the onerous aspects of heavy-handed regulatory federalism. Our comparison of state hazard-mitigation policy in Florida and in New South Wales, Australia addresses procedural and substantive compliance under the two forms of intergovernmental policies. When local governments are not committed to state policy objectives, the coercive policy produces better results as evidenced by higher rates of procedural compliance and greater effort by local governments to achieve policy objectives. When local government commitment exists, the cooperative policy produces substantive results that are at least the equivalent to the coercive policy. Moreover, over the long run cooperative policies may have greater promise in sustaining local government commitment. The dilemma is to figure out how to motivate lagging jurisdictions that seem to require a coercive policy, while not straightjacketing leading jurisdictions that are capable of thriving under a cooperative regime.     

Has the Shift to Managed Care Reduced Medicaid Expenditures? Evidence from State and Local‐Level Mandates

From 1991 to 2009, the fraction of Medicaid recipients enrolled in HMOs and other forms of Medicaid managed care (MMC) increased from 11 percent to 71 percent. This increase was largely driven by state and local mandates that required most Medicaid recipients to enroll in an MMC plan. Theoretically, it is ambiguous whether the shift from fee‐for‐service into managed care would lead to an increase or a reduction in Medicaid spending. This paper investigates this effect using a data set on state‐ and local‐level MMC mandates and detailed data from the Centers for Medicare and Medicaid Services (CMS) on state Medicaid expenditures. The findings suggest that shifting Medicaid recipients from fee‐for‐service into MMC did not on average reduce Medicaid spending. If anything, our results suggest that the shift to MMC increased Medicaid spending and that this effect was especially present for risk‐based HMOs. However, the effects of the shift to MMC on Medicaid spending varied significantly across states as a function of the generosity of the state's baseline Medicaid provider reimbursement rates.     

And the Beat Goes On: Intergovernmental Mandates and Preemption in an Era of Deregulation

For state and local governments, the 101st Congress (1989–1990)compiled a mixed record of intergovernmental regulation andpreemption. Costly and intrusive mandates were enacted to combatair pollution, protect the rights of disabled persons, and providemedical assistance to the poor. At the same time, new restrictionswere defeated in legislation affecting oil-spill liability andchild care. This article reviews the issues and politics surroundingthese enactments, and places them within the broader contextof intergovernmental regulatory trends during the 1980s. Thepast decade was characterized by increasing regulatory burdensimposed on states and localities, punctuated by occasional examplesof regulatory relief and deferral.