An essay on fiscal federalism

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The federal government has a large presence in state and local policy activities such as education, housing, and transportation. That presence is facilitated by "grants-in-aid" programs, which are subsidies to state and local governments accompanied by top-down regulations. The number of programs has tripled since the s, indicating that the scope of federal activities has expanded as spending has grown. Rather than being a positive feature of American federalism, the aid system produces irresponsible policymaking.

Essay on Federalism

Fiscal Federalism in Nigeria Free Essay Sample

Fiscal federalism is an economic framework for understanding the relationship among federal, state, and local governments that focuses on the division of spending and taxing powers among these governments. Fiscal federalism is primarily an economic, rather than political, theory of relationships among central and noncentral governments. One focus is the division of responsibilities among different types of governments. For example, the traditional theory of fiscal federalism argues that the central government should be responsible for macroeconomic policies but local governments should be primarily responsible for fire protection services. The traditional theory of fiscal federalism sets out principles regarding the proper division of spending responsibilities and taxing powers among types of governments. There are some differences between fiscal federalism and political theories of federalism. Fiscal federalism applies to any country with both central and decentralized governments, as long as the decentralized governments have some control over spending and taxing policies.

Free Economics essays

In Chapter One, we study the impact of equalization transfers in a fiscal federalism on the policies of the regional governments. This chapter presents a dynamic general equilibrium model of a fiscal federalism in which two asymmetric regions provide their residents with non-productive public expenditures a flow and public capital a stock. In our model, each regional government behaves strategically in choosing its policies to maximize the discounted welfare of its own residents, under the equalization transfer scheme. Our analysis indicates that the the tax on the use of the private capital input is equal to zero in the steady state.
As a subfield of public economics , fiscal federalism is concerned with "understanding which functions and instruments are best centralized and which are best placed in the sphere of decentralized levels of government" Oates, In other words, it is the study of how competencies expenditure side and fiscal instruments revenue side are allocated across different vertical layers of the administration. An important part of its subject matter is the system of transfer payments or grants by which a central government shares its revenues with lower levels of government.
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