Fiscal Federalism, Grants, and the U.S. Fiscal Transformation in the 1930s
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Fiscal Federalism, Grants, and the U.S. Fiscal Transformation in the 1930s. / Gonzalez-Eiras, Martin; Niepelt, Dirk.
2017.Research output: Working paper › Research
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TY - UNPB
T1 - Fiscal Federalism, Grants, and the U.S. Fiscal Transformation in the 1930s
AU - Gonzalez-Eiras, Martin
AU - Niepelt, Dirk
PY - 2017/7/20
Y1 - 2017/7/20
N2 - We propose a theory of tax centralization and intergovernmental grants in politico-economic equilibrium. The cost of taxation differs across levels of government because voters internalize general equilibrium effects at the central but not at the local level. The equilibrium degree of tax centralization is determinate even if expenditure-related motives for centralization considered in the fiscal federalism literature are absent. If central and local spending are complements, intergovernmental grants are determinate as well. Our theory helps to explain the centralization of revenue, introduction of grants, and expansion of federal income taxation in the U.S. around the time of the New Deal. Quantitatively, the model can account for the postwar trend in federal grants, and a third of the dramatic increase in the size of the federal government in the 1930s.
AB - We propose a theory of tax centralization and intergovernmental grants in politico-economic equilibrium. The cost of taxation differs across levels of government because voters internalize general equilibrium effects at the central but not at the local level. The equilibrium degree of tax centralization is determinate even if expenditure-related motives for centralization considered in the fiscal federalism literature are absent. If central and local spending are complements, intergovernmental grants are determinate as well. Our theory helps to explain the centralization of revenue, introduction of grants, and expansion of federal income taxation in the U.S. around the time of the New Deal. Quantitatively, the model can account for the postwar trend in federal grants, and a third of the dramatic increase in the size of the federal government in the 1930s.
KW - Faculty of Social Sciences
KW - Fiscal policy
KW - Federalism
KW - Politico-economic equilibrium
KW - Markov equilibrium
KW - Public goods
KW - Grants
KW - Political Economy
KW - D72
KW - E62
KW - H41
KW - H77
M3 - Working paper
T3 - University of Copenhagen. Institute of Economics. Discussion Papers (Online)
BT - Fiscal Federalism, Grants, and the U.S. Fiscal Transformation in the 1930s
ER -
ID: 189361222