In other words, it is the study of how competencies expenditure side and fiscal instruments revenue side are allocated across different vertical layers of. In my book 1972, i proposed a straightforward decentralization. We begin our investigation of fiscal centralization with an overview of the trends in the vertical structure of the state and local sector during the present century. Studies in fiscal federalism economists of the twentieth century by oates, wallace e. Toward a secondgeneration theory of fiscal federalism. The political economy of federalism american political. We revisit the role of consumption spillovers in evaluating the merits of decentralization. It then explores a series of important topics that are the subject of current research. Second generation fiscal federalism 3 1 also in this approach is the work of congleton, kyriacou, and bacaria 2003, cremer and palfrey 2002, iaryczower, saiegh, and to mmasi 2000, jones, sanguinetti, and tomasi 1999, kenny and winer 2006. These articles examine jurisdictional competition between state governments for mobile individuals and resources tiebout 1956. Though the latter approaches the problem of fiscal federalism from different perspectives, it does not challenge but complements the former.
The welfare gains from fiscal federalism accrue due to several reasons. On the theory and practice of fiscal decentralization wallace e. The decentralization theorem oates, 1972 is central to the discussion of fiscal federalism. This case is based on an improved allocation of resources in the public sector.
Some comments the traditional theory of fiscal federalism lays out a general normative framework for the assignment of functions to different levels of government and the appropriate fiscal instruments for carrying out these functions e. The basic argument is that due to the mobility of tax payers subfederal jurisdictions are not able to implement e ective redistribution policies. He received his phd in economics at stanford in 1965 and joined the faculty at princeton university. An analysis prakash chandra jha amity university rajasthan, jaipur abstract. Bird university of toronto the analysis of the problems that give rise to, and arise from, the existence of more than one level of government within the same geographical area. Second generation fiscal federalism stanford university. Chete, 1998 decentralized systems of government give rise to a set of fiscal exigencies referred to as fiscal federalism also known as fiscal decentralization. He has written widely on environmental affairs and is coauthor of the theory of environmental policy and author of the economics of environmental regulation. The recent scholarship has made distinction between two generations of literature in fiscal federalism. Oates the traditional theory of public finance has made a strong case for a major role for fiscal decentralization. At the outset, we acknowledge the difficulty of developing a fully satisfactory measure of the extent of decentralization see oates 1972, 19698. Module 1 the main pillars of the theory of fiscal federalism 1. Wallace oates was a distinguished university professor emeritus at the university of maryland and a university fellow at resources for the future. Fiscal competition and its implications a direct challenge to the fiscal federalism prescription has emerged in some of the literature on fiscal competition.
An essay on fiscal federalism 1121 my purpose in this essay is not to provide a comprehensive survey of fiscal federalism. This reprinted edition includes a new preface that briefly describes the origins of the book and comments on the evolution of the theory and practice of fiscal federalism since its publication. New york, harcourt brace jovanovich 1972 ocolc654583008. 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, 1999. The recent scholarship has made distinction between two generation of literature in fiscal federalism. However, s50 cal federalism a ects the distribution of income via indirect channels as well. As originally developed by musgrave 1959 and oates 1972, the theory of fiscal federalism con. Decentralized governments can better cater heterogeneous interests than a centralized government. Your use of the jstor archive indicates your acceptance of jstors. His first book was fiscal federalism 1972 and he authored numerous other books and articles, including the theory of.
Our purpose in this paper is to describe and explore the us brand of fiscal federalism. A read is counted each time someone views a publication summary such as the title, abstract, and list of authors, clicks on a figure, or views or downloads the fulltext. Dickson abstract the objective of this paper is to investigate the effects of fiscal federalism on economic welfare in nigeria between 1970 and 2009 using an econometric approach. Fiscal federalism has been the subject of debate in the us for a number of years, perhaps not surprisingly. The study has critically analysed the first generation theory and second generation theory of fiscal federalism. Pdf on the theory and practice of fiscal decentralization. In my book 1972, i proposed a straightforward decentralization theorem that. Musgrave 1959 and oates 1972 built a theory of fiscal federalism, stressing among other things the appropriate assignment of taxes and expenditures to the various levels of government to improve welfare.
The ordinary least square ols technique is adopted. Oates 1999 makes the point that fiscal federalism implies a rather narrow concern with budgetary matters. On the evolution of fiscal federalism national tax association. This paper is a selective survey of fiscal federalism. His first book was fiscal federalism 1972 and he authored numerous other books and articles, including the theory of environmental policy 1975, coauthored with william j. An empirical study of state and local government john joseph wallis and wallace e. Such a system, however, is open to a great deal of duplication and confusion in. Oates is a professor of economics at the university of maryland and a university fellow with resources for the future. Revisiting the decentralization theorem on the role of. A second main branch of the literature is that on fiscal federalism literature oates 1972.
The division of responsibilities among different levels of government. 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 term was originally coined by ralph musgrave, a us economist, in 1959, followed by wallace oates 1972. Pdf an essay on fiscal federalism semantic scholar. This thus, requires a broader framework for addressing fiscal federalism. See general information about how to correct material in repec for technical questions regarding this item, or to correct its authors, title. Nber conference on fiscal federalism for some very helpful comments on an earlier.
This pdf is a selection from an outofprint volume from the national bureau. For overviews of the literature on fiscal federalism, see wildasin 1986 and oates 1999. Harcourt brace jovanovich, new york is central to the discussion of fiscal federalism. Oates march 21, 1937 october 30, 2015 was a distinguished university professor of economics at the university of maryland he taught in the fields of public economics and environmental economics, and was considered a major international figure in both fields. The traditional theory also stressed that too much decentralization may. His primary research interests were public finance and environmental economics. All material on this site has been provided by the respective publishers and authors. Revisiting the decentralization theoremon the role of. Fiscal federalism is the analysis of the problems that give rise to, and arise from, the existence of more than one level of government within the same geographical area. Unlike the general prediction, a higher degree of spillovers may reduce the difference in utility of centralization and decentralization. Assignment of responsibilities and fiscal federalism. Introducing some basic assumptions concerning the behavior of public agents and specifying more carefully the system of political institutions, this second strand of new theory offers an enriched view of on the evolution of fiscal federalism. The framework is a synthesis of the dominant political and economic approaches to this issue. Fiscal federalism and economic growth sciencedirect.
When requesting a correction, please mention this items handle. An empirical analysis of fiscal decentralization on public goods spending authors. Oates march 21, 1937 october 30, 2015 was a distinguished university professor of economics at the university of maryland. Main contributions to this theory were made by tiebout 1956, musgrave 1959 or oates 1972.
Old and new theories of fiscal federalism, organizational design problems, and tiebout. As originally developed by musgrave 1959 and oates 1972, the theory of fiscal federalism concerns the division of publicsector functions and finances in a logical way among multiple layers of government king 1984. Empirical essays on fiscal federalism and political. Hatcher fiscal federalism is a staple of economic theory that underlies the federalstate partnership in the nation s largest federal grantinaid programs, such as medicaid and title ive foster care. Fiscal federalism in the usa has a distinctive structure that contrasts sharply with that in most other industrialized nations. Toward a secondgeneration theory of fiscal federalism wallace e. Principles of fiscal federalism 5 preferences in public services, political participation, innovation, and accountability. The idea is that decentralization can increase economic welfare. Since his first book, fiscal federalism 1972, he explored the assignment of functions to different levels of government in a federal system, the provision of local public goods, the design of intergovernmental grants, and the structure of local revenue systems. Fiscal federalism inter alia, plays an important role in. One segment of this literature contends that competition among governments leads to the underprovision of public services. New york, harcourt brace jovanovich 1972 dlc 78185772 ocolc277959. As the decentralisation theorem demonstrates, fiscal federalism ensures that public services are provided corresponding to the diversified demand conditions in a federation oates, 1972. On the theory and practice of fiscal decentralization.
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