Working Paper: NBER ID: w31251
Authors: Jeffrey Clemens; Stan Veuger
Abstract: Our purpose is three-fold. First, we summarize some of the core insights from both classic and more recent papers in the literature on the role of intergovernmental grants in systems of fiscal federalism. Second, we provide an updated look at some of the key institutions through which intergovernmental transfers are implemented in the United States. Third, we consider the rich environment of the COVID-19 pandemic in which new additional intergovernmental transfers were deployed, and present empirical evidence on how they affected state-level corporate tax policy. We conclude by discussing productive directions for future research on the economics of fiscal federalism and the role of intergovernmental grants as policy instruments in federal systems.
Keywords: intergovernmental grants; policy competition; fiscal federalism; COVID-19; state-level corporate tax policy
JEL Codes: H7; H71; H77
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Federal grants (I28) | State corporate tax rates (H25) |
| Federal grants (I28) | Less likelihood of tax rate reductions (H29) |
| Federal grants (I28) | Mitigated incentive for tax reductions (H26) |