Optimizing Intergovernmental Grants With Three Levels of Government

Abstract

A three-level governmental world (federal, state, and local) where the local government engages in a positive externality-producing activity is examined. At each level, each (identical) governmental unit is presumed to maximize the benefits minus costs internal to its jurisdiction. The relationship between federal and state rates of subsidy (their respective decision variables) is developed and the equilibrium rate of subsidies found. The analysis is extended to the situation where a significant portion of the taxes which finance the subsidy comes from each particular subgovernment and to a situation where tax exporting exists. Last, alternative assumptions and optimizing rules are suggested.

Get full access to this article

View all access options for this article.

References

Break, G.F. (1967) Intergovernmental Fiscal Relations in the United States. Washington, D.C.: Brookings .

Harford, J.D. (1974) "The federal construction grant program and the municipal demand for sewage treatment capital." Ph.D. dissertation, Stanford University.

McClure, C. (1967) "The interstate exporting of state and local taxes: estimates for 1962." National Tax J. 20 (March): 49-77.

Oates, W. (1972) Fiscal Federalism. New York : Harcourt-Brace-Jovanovich.

U.S. Congress (1966) Clean Water Restoration Act of 1966 (PL 89-75 3. Washington, D.C.: Government Printing Office.

Wilde, J.A. (1971) "Grants-in-aid: the analytics of design and response ." National Tax J. 24 (June): 143-155.