Central and Local Government Fiscal Behavior under Fiscal Federalism---Theoretical Analysis and Empirical Evidence
Open Access
- Author:
- Hao, Yan
- Graduate Program:
- Public Administration
- Degree:
- Doctor of Philosophy
- Document Type:
- Dissertation
- Date of Defense:
- June 14, 2024
- Committee Members:
- L. Marvin Overby, Program Head/Chair
David Argente, Outside Unit & Field Member
Younhee Kim, Major Field Member
Dan Mallinson, Major Field Member
Odd Stalebrink, Chair & Dissertation Advisor - Keywords:
- intergovernmental transfer
game theory inference
decision making mechanism
political party influence
partisan alignment
fiscal federalism
principal components analysis (PCA)
panel data analysis
grant allocation
mechanisms
tax collection effort
Ramsey model
kalman filter
grant allocation mechanism - Abstract:
- This dissertation undertakes a comprehensive analysis of the intricate interplay between central and subnational governmental entities within the framework of fiscal federalism. This investigation is structured around the exploration of three distinct inquiries pertinent to both national and subnational administrations. These three inquiries are systematically delineated into two hierarchical levels and subsequently deliberated upon across four dedicated chapters. The findings from these studies offer a comprehensive insight into the complexities of fiscal interactions, advancing our understanding of how intergovernmental transfer mechanisms and governmental strategic behaviors influence the efficiency and effectiveness of public service delivery across different governmental tiers. This enhanced perspective contributes significantly to the field by detailing the conditions under which fiscal policies can be designed to optimize the balance between national objectives and local autonomy, thereby promoting a more equitable distribution of public resources. Chapter 2 introduces a dynamic game theory model to analyze the strategic interactions between central and subnational governments in the allocation of public goods. Employing backward induction, it reveals how different intergovernmental transfer mechanisms— no provision, joint provision, general transfer, and categorical transfer—affect public goods provision and utility outcomes at both the national and subnational levels. Key findings illustrate the strategic behaviors of governments, demonstrating the conditions under which subnational entities accept categorical transfers. This chapter contributes to understanding the decision-making process in fiscal federalism, highlighting the complex balance between national objectives and local needs. Chapter 3 examines the influence of political party control on intergovernmental grants in the United States using panel data from 2000 to 2019. It uncovers how political alignment between state and federal governments impacts the distribution of intergovernmental transfers. Through Principal Components Analysis and fixed effect regression models, the study finds that states with unified political control tend to receive fewer grants, challenging the hypothesis that swing states are favored in grant allocation. This analysis provides insights into the role of political factors in fiscal federalism. Chapter 4 delves into the "flypaper effect" and its implications on local governments’ spending behavior following intergovernmental transfers. By reviewing literature and employing a mathematical model, it systematically analyzes how these transfers influence local expenditure decisions. The chapter contributes to the fiscal federalism discourse by offering a comprehensive review of the flypaper effect, demonstrating its significance in understanding local governments’ fiscal responses to federal grants. Focusing on the impact of grants on subnational governments’ revenue collection efforts, Chapter 5 employs a nuanced Ramsey model and Kalman filter estimation to examine how general and categorical grants affect local tax efforts. The study distinguishes between the incentives provided by different types of grants, offering empirical insights into the dynamics of fiscal federalism. It suggests that specific transfer payments can either incentivize or disincentivize local tax effort, highlighting the importance of grant design in enhancing fiscal autonomy and efficiency at the local level.