Article

State and Local Government Finance: Why It Matters

Serdar Yilmaz, François Vaillancourt and Bernard Dafflon

in The Oxford Handbook of State and Local Government Finance

Published in print March 2012 | ISBN: 9780199765362
Published online September 2012 | | DOI: http://dx.doi.org/10.1093/oxfordhb/9780199765362.013.0004

Series: Oxford Handbooks

 State and Local Government Finance: Why It Matters

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This article lays out the economists' view of why state and local government matters. To establish the economic framework, the article systematically works through the seminal contributions of Paul Samuelson's theoretical arguments of the importance of a public-sector role for efficiency in resource allocation; Charles Tiebout's thinking on the difference between national and local public goods; Richard Musgrave's classification of the fiscal “branches” of a decentralized federalist system; and Wallace Oates's Decentralization Theorem. It is from this platform that the article proceeds to address three fundamental fiscal policy issues for a multigovernmental society (e.g., US fiscal federalism): the sorting out of expenditure responsibilities among different types of governments (“expenditure assignment”); the question of which type of government should use which type of revenue (“revenue assignment”), and what happens when, for many state and local governments, the costs of the allocation of expenditure responsibilities are greater than that which can be financed from their “own” state/local revenues (the role of “intergovernmental transfers”).

Keywords: local government finance; resource allocation; public sector; public goods; decentralization; fiscal federalism

Article.  13412 words. 

Subjects: Economics ; Public Economics ; Financial Markets

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