Working Paper: NBER ID: w3941
Authors: Robert P. Inman; Daniel L. Rubinfeld
Abstract: The existing political and legal institutions of fiscal policy-making are under challenge. As the United States and the eastern European and Soviet states experiment with policy decentralization, the states of western Europe are looking to a more centralized policy structure via the E.E.C.. This paper seeks to raise issues of importance to all such reform efforts--notably, the need to consider, and balance, the inefficiencies of fiscal policy decentralization (spillovers and wasteful fiscal competition) against the inefficiencies of fiscal policy centralization (policy cycles and localized 'pork barrel' spending and taxes). The need to develop new fiscal policy institutions emphasizing voluntary agreements and responsive 'agenda-setters' is stressed.
Keywords: Fiscal Federalism; Economic Integration; Decentralization
JEL Codes: H77; E61
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| member state fiscal policies (H79) | effectiveness in offsetting economic shocks (E60) |
| import constraints (D10) | effectiveness of member state fiscal policies (F42) |
| state fiscal responses (H79) | local economic shocks (F69) |
| interdependencies among states (F55) | nonoptimal management of fiscal policies (E62) |
| capital market reluctance (G19) | constrained ability to manage economic downturns (F65) |
| central government fiscal policies (E62) | management of externalities (D62) |
| central government intervention (H10) | mitigate issues of moral hazard and adverse selection (D82) |