State and Local Government Expenditures

Chapter State and Local Government Expenditures Public Finance and Public Policy Introduction „ Optimal fiscal federalism is the question of which activities should take place at which level of government „ For example, welfare programs were historically financed at the federal and state level, while education is largely financed at the state and local level FISCAL FEDERALISM IN THE U.S AND ABROAD „ Early in the history of the United States, the federal government played a relatively limited role „ The last amendment of the Bill of Rights of the United States Constitution states: “The powers not delegated to the United States by the Constitution, nor prohibited by it to the states, are reserved to the states respectively, or to the people.” „ Figure shows the spending patterns over time Figure Federal State In 1902, and government the local federal governments was government responsible The were role The ofshare the federal of state government financing coming responsible accounted for national fordefense, only education, 34%foreign of grew police, totalwith fromthe theintroduction federal government of the has relations, roads, government sanitation, judicialspending; functions, welfare, federal local health, and grown income the because tax and of thejoint Newprogram Deal like Breakdown of so Total Spending governments hospitals, postal accounted service and on programs forGovernment 58% of cash the welfare Great Depression and Medicaid 80% 60% 40% 20% Federal State Local 2002 1977 1952 1927 0% 1902 Share of Total Government Spending 100% FISCAL FEDERALISM IN THE U.S AND ABROAD „ The largest element of state and local spending is education, followed by health care and public safety „ For federal spending, the largest elements are health care, Social Security, and national defense Spending and Revenue of State and Local Governments „ The major source of revenue at the state and local level is the property tax, the tax on land and any building on it „ Property taxes raised $253 billion in revenue in 2001, and accounted for almost one-half of the nongrant revenues of local governments Fiscal Federalism Abroad „ The U.S sub-national governments collect a much larger share of total government revenue than in other countries, and spend a somewhat larger share of total government spending „ Table shows this Table Subnational government spending/revenue as a share of total government spending/revenue Spending % Greece Revenue % 5.0 3.7 Portugal 12.8 8.3 France 18.6 13.1 Norway On the spending Theside, average the state/local38.8 government differences are slightly collectsless 22% of total 40.0 government United States dramatic revenue, while those in the U.S Denmark 57.8 collect 40% OECD Average 32.2 20.3 40.4 34.6 21.9 Fiscal Federalism Abroad „ The higher level of centralization in other nations exists because state/local governments have almost no legal power to tax citizens „ Many countries practice fiscal equalization, whereby the national government distributes grants to sub-national government in an effort to equalize differences in wealth Fiscal Federalism Abroad „ There has been a move toward decentralization around the world „ In the U.S., there have been increased efforts to shift control and financing of public programs to the states, such as with welfare reform in 1996 ... Security, and national defense Spending and Revenue of State and Local Governments „ The major source of revenue at the state and local level is the property tax, the tax on land and any building... time Figure Federal State In 1902, and government the local federal governments was government responsible The were role The ofshare the federal of state government financing coming responsible... Total Spending governments hospitals, postal accounted service and on programs forGovernment 58% of cash the welfare Great Depression and Medicaid 80% 60% 40% 20% Federal State Local 2002 1977