This article examines the problem of structuring intergovernmental aid to correct
for fiscal disparities. In general, distributing aid to equalize average tax effort will
not eliminate underlying fiscal disparities. To do so requires that aid be distributed
so as to equalize the local tax rate necessary to finance a base level of public services.
Reviewed briefly are the potential consequences of these two approaches for
horizontal equity and tax base mobility. Using data for Arizona school districts, the
two approaches are shown to have widely disparate implications for the distribution
of state school aid.
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