Scholars have long been interested in the politics of taxation in the U.S. states. Research in this area has not, however, sufficiently explored the impact of fiscal federalism on state-level taxing decisions. Drawing on theoretical models of fiscal choice, this study develops the expectation that, under certain conditions, federal grants-in-aid exert significant downward pressure on state-level tax effort. I test that assertion in an analysis of tax effort in the U.S. states between 1971 and 1996.
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