Fiscal Federalism: No More Federal Funding of Local Government

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Walking the sidewalks in any US small or large city, one sees at street intersections ramped curb-cuts designed to benefit people in wheelchairs. While these infrastructure modifications have certainly benefited some needing assistance to cross at intersections, many of these amenities are as likely to benefit skateboarders, cyclists, and parents pushing strollers and baby carriages—or mere ordinary pedestrians—as they benefit the wheelchair-bound.

These curb-cuts trace their origin from 19th-century federal transportation subsidies, through mid-20th-century open-ended, flexible, revenue-sharing in effect from 1972 until 1986, then followed by disability-assistance legislation in 1990, and most recently, during the covid era, the largest federal assistance measures ever to state and local governments.

Reducing or eliminating some of this federal spending largess to lower-level governments could now direct attention to a new era of fiscal federalism as the US searches for ways to cut federal expenditures and reduce federal budget deficits and the ever-increasing federal debt.

Fiscal Federalism

At the heart of this history, and potential federal budget cost-cutting efforts, is a concept known as fiscal federalism, which is defined as, “…financial relations between units of governments in a federal government system…[that] is part of broader public finance study within the discipline of economics…fiscal federalism deals with the division of governmental functions and financial relations among levels of government.”

Fiscal federalism, in other words, investigates how local, state, and federal governments should relate among themselves with respect to their policies and financial responsibilities, investigating what and who determine the locus of decision-making and spending authority among different levels of government. […]

— Read More: mises.org

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