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Fiscal Devolution And U.S. County Governments, 1987-2002
Within the context of fiscal devolution or decentralization in the United States, states and localities are fulfilling redistributive functions previously under the responsibility of the federal government. Under fiscal federalism, the federal government generally implements redistributive policies while local government focuses on development. The theory of fiscal federalism argues that the potential for redistribution may be lower at the state and local levels than at the federal level due to developmental pressures. As a result, movement toward devolution could decrease redistributive activities and raise the potential for spatial inequality across the nation. This study pays particular attention to the role of state policy under decentralization as more responsibility for redistribution and development is delegated away from federal government and down to state government. States are emerging as a critical component of the multilevel federalist governmental system by playing both redistributive and developmental roles. The states use two key policy tools to deal with the impacts of devolution: state aid and state centralization. The analysis explores the extent to which state aid is redistributive or developmental in its focus, after controlling for state centralization. In order to conduct a complete study of decentralization at the micro, meso, and macro government levels, the federal and local government are also examined in addition to the state. The study analyzes government finance during 1987-2002 for all U.S. counties in the lower forty-eight states to answer the following research question: Are federal aid, state aid, and local government revenue effort redistributive, developmental, or both? In particular, the focus is on the changing roles and impacts of federal and state intergovernmental aid and state centralization of fiscal responsibility on local government revenue effort. By looking over the 1987-2002 time period, these evolving roles are tracked at three different governance scales: federal, state, and local. The contribution of the work is to provide a global picture of governmental finance over a fifteen year period rather than focusing on specific programs. Using data collected from the U.S. Census of Population, U.S. Census of Governments, and U.S.D.A. Economic Research Service, three fixed-effect crosssectional models are implemented for 1987, 1992, 1997, and 2002. In addition, three fixed-effect generalized estimation models are employed for the entire timeframe. The results show that both state aid and state centralization have steadily increased throughout the period studied, demonstrating the trend of recentralization within decentralization. The study illustrates the emergence of the meso level state and its important roles for both redistribution and development. State centralization is a substitute for state aid and local effort. State aid is shown to be more redistributive in its focus, while federal aid and local effort are pro-cyclical and developmental. The findings indicate that the classical theory of fiscal federalism is less applicable to a more decentralized governmental system since federal aid, state aid, and local effort are all found to fulfill functions of both redistribution and development. Instead of a simple dichotomy between redistributive vs. developmental policy objectives, there is a nuanced combination of both types of funding that reflects government support for growth poles as well as some interest in redistribution. The results suggest that these two policy aims, which may seem contradictory, can work together, not in opposition. Due to the economic and demographic disadvantages faced by rural areas, the analysis also takes on a spatial component by focusing on the spatial impacts of devolution in rural and urban counties. Federal and state aid do not specifically target rural or urban counties. However, redistributive federal and state aid is directed toward economic and demographic characteristics of rural counties. On the other hand, developmental federal and state aid is aimed at economic and demographic characteristics of urban counties.
dissertation or thesis