Fiscal federalism in the USA has a distinctive structure that contrasts sharply with that in most other industrialized nations. Our purpose in this paper is to describe and explore the US "brand" of fiscal federalism. We demonstrate that there is a striking amount of variety in the 50 state fiscal systems and that these differences have prevailed in the face of potentially disruptive forces. The variety we find stems in large part from states having meaningful fiscal autonomy, in particular, the authority to levy taxes. The result is likely higher societal welfare than would ensue without this autonomy.

Local property taxes are commonly regarded as regressive, but the two dominant (and competing) views of the property tax would disagree. Under the capital-tax view, the national element of the tax is a tax on real estate capital, which makes it somewhat inefficient but progressive, given the distribution of ownership of real property. Under the benefit view, the local component of the property tax is not really a tax but a fee for service. We describe evidence that the capital-tax view applies in relatively undeveloped areas, while the benefit view is more relevant in developed urban areas.

The window tax provides a dramatic and transparent historical example of the potential distorting effects of taxation. Imposed in England in 1696, the tax—a kind of predecessor of the modern property tax—was levied on dwellings with the tax liability based on the number of windows. The tax led to efforts to reduce tax bills through such measures as the boarding up of windows and the construction of houses with very few windows. In spite of the pernicious health and aesthetic effects and despite widespread protests, the tax persisted for over a century and a half: it was finally repealed in 1851. Our purpose in this paper is threefold. First, we provide a brief history of the tax with a discussion of its rationale, its role in the British fiscal system, and its economic and political ramifications. Second, we have assembled a dataset from microfilms of local tax records during this period that indicate the numbers of windows in individual dwellings. Drawing on these data, we are able to test some basic hypotheses concerning the effect of the tax on the number of windows and to calculate an admittedly rough measure of the excess burden associated with the window tax. Third, we have in mind a pedagogical objective. The concept of excess burden (or "deadweight loss") is for economists part of the meat and potatoes of tax analysis. But to the laity the notion is actually rather arcane; public-finance economists often have some difficulty, for example, in explaining to taxpayers the welfare costs of tax-induced distortions in resource allocation. The window tax is a textbook example of how a tax can have serious adverse side effects on social welfare. In addition to its objectionable consequences for tax equity, the window tax resulted in obvious and costly misallocations of resources.

This paper develops an analytical framework for comparing the welfare effects of energy efficiency standards and pricing policies for reducing gasoline, electricity, and nationwide carbon emissions. The model is parameterized with US data and includes key externalities in the energy/transportation sectors and possible underinvestment in energy efficiency due to “misperceptions” over energy savings. Even with large misperceptions, the extra welfare gains from complementing efficient pricing policies with energy efficiency standards are zero for reducing gasoline and 5 percent for reducing electricity. And when viewed as substitutes, these standards forgo 60 percent or more of the potential welfare gains from corresponding pricing policies. A combination of energy efficiency and emissions standards is more than three times as costly as carbon pricing when there is no misperception over energy savings, and even with large misperceptions, combining carbon pricing with gasoline/electricity taxes is better than combining it with energy efficiency standards.

We reevaluate fiscal illusion in local public finance. The Ricardian Equivalence Theorem suggests that the financing of a public program using either taxation or debt shouldn't affect outcomes, because debt is capitalized into property values. In contrast, we show individuals may rationally prefer public debt if governments can borrow on more favorable terms. We also propose a new test for the renter effect: controlling for differences in demand, the renter effect suggests renters prefer property taxes to sales taxes. Using data from U.S. open space referenda, we find that households do prefer debt financing, but find no evidence of the renter effect.

We re-evaluate two forms of fiscal illusion in local public finance: debt illusion and renter illusion.The Ricardian Equivalence Theorem for local governments suggests the form of finance of a public program (tax or debt finance) has no effects on substantive outcomes.For the local case, this results from the capitalization of local fiscal differentials into property values.We show that this version of the model is quite restrictive.In particular, in the U.S, context, where state and local interest is exempt from federal taxation, rational behavior may be inconsistent with Ricardian equivalence if local governments can borrow on more favorable terms than individuals.We also suggest a new test for renter illusion (or the renter effect).In particular, whether or not renters are more likely to support public investments in general, the renter effect suggests that renters are more likely to support them when financed with property taxes than with sales taxes.Using data from hundreds of open space referenda in the U.S. using a variety of finance mechanisms, we find evidence that households do prefer debt financing to tax financing, but find no evidence of the renter effect.

This paper explores the origins and evolution of the theory of fiscal federalism. A relatively recent sub-field of public finance, fiscal federalism addresses the economics of multilevel government including the economic roles of different levels of government and the fiscal instruments they employ. Its evolution has been influenced both by some real-world financial crises and by the application of new analytical approaches in the discipline of economics.

From 1998 to 2006, over three-quarters of the more than 1,550 U. S. referenda targeting open space passed. We analyze the success of the conservation movement at holding referenda in areas with greater ecological value and greater likelihood of supporting conservation. To do so, we first analyze the patterns in where referenda are held and in which finance mechanisms they employ. Controlling for these two selection patterns, we then investigate the factors determining the success of the referenda. Our findings suggest that conservation groups are pursuing a successful strategy, targeting communities with above-average probabilities of passing referenda and higher ecological value. Nevertheless, our results suggest that overlooked opportunities exist in minority and middle-class neighborhoods, in suburban fringe areas, and in the Southeast. (C) 2010 by the Association for Public Policy Analysis and Management.

As economists, we believe that the Second Circuit's ruling, by not allowing the consideration of important information about the relationships between the benefits and costs of alternatives, is economically unsound. In particular, we believe that, as a general principle, regulators cannot make rational decisions unless they are allowed to compare costs and benefits and to use the results, along with other factors as appropriate, to choose among alternatives.To the extent permissible under the statute and case law, EPA should be allowed to consider benefits and costs in establishing rules for implementing s316(b). The Court's allowing EPA to consider benefits and costs would improve both the decision making process - by making it more transparent - and the regulatory decisions by allowing important relevant information to be considered explicitly.

Previous articleNext article No AccessFORUM: Reflections by Recent Recipients of the Holland Medal—Part TwoOn The Evolution of Fiscal Federalism: Theory and InstitutionsWallace E. OatesWallace E. OatesPDFPDF PLUS Add to favoritesDownload CitationTrack CitationsPermissionsReprints Share onFacebookTwitterLinkedInRedditEmail SectionsMoreDetailsFiguresReferencesCited by National Tax Journal Volume 61, Number 2June 2008 Published for: The National Tax Association Article DOIhttps://doi.org/10.17310/ntj.2008.2.08 Views: 165Total views on this site Citations: 1Citations are reported from Crossref © 2008 National Tax Association. All rights reserved.PDF download Crossref reports the following articles citing this article:Timothy M. Komarek and Gary A. Wagner Local Fiscal Adjustments From Depopulation: Evidence From The Post–Cold War Defense Contraction, National Tax Journal 74, no.11 (Mar 2021): 9–43.https://doi.org/10.1086/712917

The Ricardian Equivalence Theorem establishes a set of conditions under which the form of finance of a public program (tax or debt finance) has no effects on any substantive outcomes. Following Barro (1974), the theorem has typically been formulated in the context of a national government in an intergenerational model of altruistic individuals, in which the impact of debt finance is offset by increased private saving. However, Ricardian equivalence can also be established in a setting of local public finance. Here, its rationale is entirely different. It results not from altruistic behavior, but from the operation of local land markets under which local fiscal differentials are capitalized into local property values. In this paper, we provide a proof of this latter form of Ricardian equivalence in terms of a simple multi-period model of local government finance. We then explore its relevance to local public finance. We find that it is quite restrictive in certain respects. In particular, in the U.S, context, where the interest income from state and local bonds is exempt from federal income taxation, we argue that rational behavior may be inconsistent with Ricardian equivalence. Finally, after reviewing some earlier evidence, we present some new findings from an econometric analysis of local referenda in the U.S. for the conservation of open space that reveal a preference on the part of electorate for local bond finance over tax finance.

AbstractThis paper reviews first the theoretical literature and then the empirical studies of interjurisdictional competition among governments. Of central interest is the normative question of whether fiscal and regulatory competition promotes a more efficient functioning of the public sector or whether it is the source of distortions in the public and private sectors. This is a contentious issue; both the theoretical and empirical literature, while providing some rich insights into the potential impact of such competition, do not give us an unambiguous answer to the general normative question. The concluding section offers the author's thoughts on all this with a leaning towards the view that such competition is, on balance, efficiency-enhancing.

In 2005, the European Union introduced the largest and most ambitious emissions trading program in the world to meet its Kyoto commitments for the containment of global climate change. The EU Emissions Trading Scheme (EU ETS) has some distinctive features that differentiate it from the more standard model of emissions trading. In particular, it has a relatively decentralized structure that gives individual member states responsibility for setting targets, allocating permits, determining verification and enforcement, and making some choices about flexibility. It is also a “cap-within-a-cap,” seeking to achieve the Kyoto targets while only covering about half of the EU emissions. Finally, it is a program that many hope will link with other greenhouse gas (GHG) trading programs in the future—something we have not seen among existing trading systems. Examining these features, coupled with recent EU ETS experience, offers lessons about how cost effectiveness, equity, flexibility, and compliance fare in a multi-jurisdictional trading program, and highlights the challenges facing a global emissions trading regime.