Fiscal Federalism, Grants, and the U.S. Fiscal Transformation in the 1930s

Publikation: Working paperForskning

We propose a theory of tax centralization and intergovernmental grants in politico-economic equilibrium. The cost of taxation differs across levels of government because voters internalize general equilibrium effects at the central but not at the local level. The equilibrium degree of tax centralization is determinate even if expenditure-related motives for centralization considered in the fiscal federalism literature are absent. If central and local spending are complements, intergovernmental grants are determinate as well. Our theory helps to explain the centralization of revenue, introduction of grants, and expansion of federal income taxation in the U.S. around the time of the New Deal. Quantitatively, the model can account for the postwar trend in federal grants, and a third of the dramatic increase in the size of the federal government in the 1930s.
Antal sider43
StatusUdgivet - 20 jul. 2017
NavnUniversity of Copenhagen. Institute of Economics. Discussion Papers (Online)


  • Det Samfundsvidenskabelige Fakultet - Fiscal policy, Federalism, Politico-economic equilibrium, Markov equilibrium, Public goods, Grants, Political Economy, D72, E62, H41, H77

ID: 189361222