The Distribution of Revenue-Sharing Funds and Local Public Expenditure Needs

Abstract

This paper examines the intrastate distribution of revenue-sharing funds using a cross-section sample of New York communities. The concept of needs is discussed, and a measure of local public expenditure needs is derived from aggregate consumption function theory. This measure of local public expenditure needs is used along with a measure of local fiscal capacity in examining the distribution of revenue-sharing funds. Revenue-sharing funds are found to be positively correlated with estimated expenditure needs but negatively correlated with the “gaps” between expenditure needs and local fiscal resources. It is suggested that the reason for these results is that the revenue-sharing allocation formula does not include an adequate measure of local fiscal capacity.

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