Decentralization and fiscal disparities in the United States of America

Abstract

This paper examines the increasingly important role of the states in the US federal system and the implications of that growing role for the allocation of intergovernmental transfers. The author argues that as intergovernmental funds become more scarce, as is occurring in the USA, the distribution of these funds needs to take more account of the relative fiscal conditions of the states and to direct a larger share of funds to the fiscally weaker states. Various approaches to altering allocation systems are presented and a specific method for adjusting for fiscal disparities among the states is offered.