An Implicit Contract Theory of Intergovernmental Grants

A central puzzle in the economic analysis of intergovernmentalgrants in a federal polity is the conflict between the predictionsof the standard theory and empirical observation. Standard theoryhas no explanation for the widely observed fact that "moneysticks where it hits," that is, for the "flypaper effect" fromspecific, non-matching grants. This effect is observed whengrants that apparently are the economic equivalents of generalrevenue grants have the consequences to be expected from matchingspecific grants. We propose a resolution. Most grants are accompaniedby an implicit as well as an explicit contract between grantorand recipient. The purpose of these contracts is to influencethe behavior of the recipient, by making the size of the streamof grants conditional upon the recipient's responses to thewishes of the donor.     

Intergovernmental Grants: A Formal Model of Interrelated National and Subnational Political Decisions

Intergovernmental grants are based on the interrelated choicesof: (i) the national government deciding whether to offer thegrant; (ii) the national government determining grant conditions;(iii) the subnational government deciding whether to acceptthe grant; and (iv) the subnational government determining policy,including spending levels, upon grant receipt. Empirically andtheoretically, scholars often study these decisions separately,leading to an incomplete understanding of grant-related behavior.This article develops a noncooperative game theoretic modelthat simultaneously captures all four of these decisions. Thisapproach helps to better explain puzzles surrounding intergovernmentalgrants, including the ‘flypaper effect,’ asymmetricresponses of recipient governments to grant increases and decreases,the grant-acceptance decisions of subnational governments, andtradeoffs between the size of grants and the strings that areattached.     

Asymmetric Effects of Intergovernmental Grants: Analysis and Implications for U.S. Welfare Policy

Theories of federal grants to states and localities suggestthat these grants have a stimulative effect on spending, causingrecipient governments to expand and contract programs alongwith changes in the grants. However, policymakers may responddifferently to grant decreases than to grant increases becausethey face political and bureaucratic pressures to expand programs.These asymmetric reactions may depend on specific politicalstructures. Pooled time-series regressions of data from theAid to Families with Dependent Children program across 46 statesfrom 1965 to 1994 demonstrate state government responses togrant changes. Bureaucratic pressures and proposals lead statesto expand their welfare benefits upon increases in federal grants,but not to contract them upon decreases in federal grants. Withregard to the 1996 welfare reforms, this study indicates thatthe switch to block grants will lead to little or no state reductionin welfare payments.     

Federal Grants, Earmarked Revenues, and Budget Crowd-Out: State Highway Funding

This paper examines the potential for budget crowd-out in state highway financing. Highway projects are funded primarily through state earmarked tax revenues and federal highway grants. Theoretically, these two sources of revenues could crowd-out state general funds, freeing up these funds for other uses. Previous studies of highway funding show little evidence of significant crowd-out, providing support for the "flypaper effect." The empirical model of this paper better controls for the endogeneity of federal highway grants and state earmarked highway revenues than previous studies and results suggest little to no crowd-out. Also, our study concludes that state budgeting decisions in the post-Intermodal Surface and Transporation Efficiency Act era still support the "flypaper effect."     

The Status of the Budget Constraint,Federalism and the Relative Size of Government: A Bureaucracy Approach

We develop a model along the lines of Niskanen,articulating that under a soft government budgetconstraint the full production cost of the public goodis not reflected in the tax price as perceived by theconsumer-taxpayer-voter. Various proportions ofnon-tax financing and different degrees of votermyopia with respect to discounting the future taxliabilities are taken into account. It can be shownthat both the actual level of public output and theamount of slack resources are lower under a hardbudget constraint than under a soft budget regime.Lower levels of government typically operate under ahard budget constraint when compared with the federallevel since they have only limited (public) borrowingopportunities and no access to money creation(seignorage). In a federalist setting more governmentdecisions are taken under a hard budget constraintthan in a unitary state. Hence one would expect thatthe overall size of government is relatively smallerin a structure with fiscal federalism. An empiricaltest for 19 OECD-countries (1990–1992) seems tosupport this hypothesis.     

On the Design of Equalizing Grants

This article considers the design of grants to offset fiscaldisparities. We define a fiscal disparity as a condition inwhich towns must levy a different tax rate in order to providethe same level of public services. We consider ways of measuringdisparities, as well as ways of allocating grants to alleviatedisparities. In order to focus the presentation, we concentrateon lump-sum grants for unrestricted use from a state governmentto general purpose local governments within that state. We concludeby presenting an example of a grants formula for the state ofNew Jersey which meets our specifications.     

Clearer Cues,More Consistent Voters: A Benefit of Elite Polarization

Scholars typically argue that elite polarization has only negative consequences for American politics. I challenge this view by demonstrating that elite polarization, by clarifying where the parties stand on the issues of the day, causes ordinary voters to adopt more consistent attitudes. Scholars have made such claims in the past, but because only observational data has been available, demonstrating a cause-and-effect relationship has proven to be difficult. I use original experiments to verify that there is a small but significant causal link between elite polarization and voter consistency. These findings have important normative implications for our understanding of the consequences of elite polarization, the role of political parties in a modern democracy, and the standards scholars use to assess citizen competence and participation.     

Parties and Voters: What Creates the Ties?

The increasing instability in the electorate and the party system forces us to reconsider the Lipset-Rokkan thesis about the frozen party system. In this approach, cleavages played a major role, but in Western Europe, this role has diminished significantly. The frequent shifts in voter allegiance call for a new understanding of the mechanisms that connect voters and parties. A reinterpretation of the concepts of a "frozen party system" or "cleavages" is not enough. We need a new theory about the strategic interaction between parties and a floating electorate.     

Tribes and States: A New Era in Intergovernmental Affairs

The history of tribal-state conflict and the role of the federalgovernment is nearly two centuries old. In recent years, themost contentious source of conflict between American Indiantribes and states has been Indian gaming. The Congress attemptedto compromise and resolve the issue by passing the Indian GamingRegulatory Act (IGRA) in 1988, but the law has only exacerbatedand opened up new avenues of conflict. The scope and stakesof Indian gaming can be seen in the history of Indian gamingin New Mexico where the defects in IGRA have been readily apparent.As Indian gaming has grown, so have efforts to curtail it andother aspects of tribal sovereignty, including tribal sovereignimmunity. These efforts are currently underway in the Congress.     

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.     

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.     

Intergovernmental Growth Management: A Partnership Framework for State-Local Relations

Growth management receives strong support as a policy concept.However, there are serious political reservations concerningits implementation. The Florida Growth Management Act is anexample of a well constructed policy that relies on a partnershipapproach to state-local relations. Its implementation during1989 has brought to light the difficulties in maintaining thatpartnership, mainly due to disagreements over responsibilityfor funding the infrastructure needed to manage growth. Statewillingness to negotiate revenue sources and responsibilityis essential to strong state-local relations. The complexitiesof financing growth management threaten the viability of strongplanning policy, regardless of its rationality.     

Bitter Harvest: Intergovernmental Dimensions of the Farm Crisis

The recent and deep recession in American agriculture seriouslyaffected state and local government finances and services in1986. Sharp declines in farm land values began to erode thelocal property tax base in many rural communities, while rapidlyrising property tax delinquencies created more immediate cashflow problems. Many farm states experienced serious budgetaryshortfalls as revenue receipts from state income and sales taxesdeclined or failed to grow at expected rates. Both state andlocal fiscal problems were exacerbated by federal aid reductions,regional economic conditions, and rising service demands. Suchproblems made agricultural policy a major issue in the 1986elections and prompted a proliferation of new policy initiatives,especially by state governments. Some of the policy approachesadopted or being considered raise fundamental questions aboutintergovernmental relations and methods of public service provisionin a rapidly changing policy environment.     

Two Decades of Change: A Ranking of Key Issues Affecting Intergovernmental Relations

This article describes the results of a 1981 survey of 1,000randomly selected scholars of American government and politicswho were asked to rank the most significant intergovernmentalevents and trends of the past twenty years. Responses were receivedfrom almost 40 percent of these scholars; no significant returnbiases were detected. These scholars ranked civil rights andvoting rights acts as the most significant events of these decades.General Revenue Sharing and the reapportionment cases were rankedsecond and third in importance. The increased flow of federaldollars to states and local governments was ranked the mostimportant trend affecting intergovernmental relations, followedby the increased public disaffection with government and thegrowing dependence of local governments on state and federalaid. The Vietnam War and the inflationary spiral it initiatedwas ranked as the most significant social event affecting thecourse of intergovernmental relations, followed closely by theenergy crisis and the beginnings of the "Great Society." Thearticle also examines the effects of party identification, age,year of degree, government experience, region, and city sizeon scholarly attitudes toward these events and trends. Whilethe overall rankings were not dramatically altered, partisanship,region, and city size all were factors found to be noticeablyrelated to scholarly rankings of these important events andtrends.     

公共预算中的公民制度化参与——以浙江温岭市新河模式为例

本文介绍了浙江温岭市新河模式的形成过程和主要做法,分析了新河模式中公民制度化参与财政预算的途径和机制,探讨了新河模式在扩大公共参与等方面的效果、作用和意义,解剖了新河模式中财政预算的公众制度化参与过程可能出现的问题和误区,指出了新河模式存在的制度条件及其示范价值。最后,从协商民主与代议民主相结合的理论视角,对公共预算中公民制度化参与的新河模式进行了分析总结。     

Block Grants: A Perennial, But Unstable, Tool of Government

During 1995 and 1996, the Congress and the president gave considerableattention to block granting over $200 billion in federal intergovernmentalgrant programs, ranging from large entitlement programs to smallerprograms in housing, vocational education, and law enforcement.In the end, the record of successes was modest—highlightedby welfare-reform legislation that, in some respects, resembleda block grant and in others did not. The contrast between processand outcomes in this most recent block-grant cycle reinforcesthe point that block-grant prospects depend on fundamental fiscal,political, and programmatic forces that are separate from federalismconsiderations. The states' maturation as leaders in many domesticpolicy areas strengthens the performance rationale for blockgrants. The federal fiscal crisis will continue to stimulateinterest in block grants among fedeal as well as state policymakers.The proposals offering the greatest fiscal advantage (i.e.,Medicaid and AFDC) may not be those with the strongest performancerationale. Although recent congressional developments suggeststronger support for states, nationalizing forces remain embeddedin domestic policymaking. Thus, substantial questions remain,posing obstacles to a fundamental and sustained role for blockgrants in the federal system.     

How Voters Evaluate Economic Competence: A Comparison between Parties In and Out of Power

Accounts of general election outcomes increasingly talk about voters comparing parties in terms of their perceived competence to manage the economy and public services. This raises the question of how voters form evaluations of party competence. While it is assumed that voters form evaluations of the incumbent based on the signals provided by its current performance in office it is less clear how, in the absence of such a performance record, voters might evaluate the potential competence of the opposition. Using data from the British Election Panel Studies this article models the process by which voters form evaluations of parties' competence to manage the economy and compares results across incumbent and opposition parties. On the basis of evidence from general elections of 1992–2001 the article demonstrates that the process of evaluation formation does differ between parties in and out of power with retrospective evaluations of recent economic performance influencing evaluations of the former but not the latter. Nevertheless, the article also demonstrates that voters are capable of forming evaluations of the opposition which are more than a simple mirror image of their evaluations of the incumbent. In the absence of an up-to-date performance record these evaluations are based on long-term partisan and ideological predispositions and the cues provided by party leaders.