Fiscal decentralization: Determinants and effects on the revenue patterns by source and the expenditure patterns by function at the state and local level in the United State

This study examines the factors which determine the degree of decentralization in the fiscal relationships between state and local governments in the United States for the period 1975-1988. Further, it assesses the consequences of the degree of fiscal decentralization for state and local governance. More specifically, the objectives include: (1) defining and operationalizing decentralization; (2) identifying the factors which explain variation in the degree of fiscal decentralization; (3) examining the effects of socio-economic, legal, and political factors on the degree of fiscal decentralization; and (4) exploring the effects of fiscal decentralization on the revenue patterns by source and expenditure patterns by function at the state and local level in the United States.;This study uses fiscal decentralization measures for four major functions as well as two aggregate measures from both the revenue and expenditure sides. In this study state categorical grants are classified as state expenditures, while state aid for local general support is included among local expenditures.;Pooled time series analyses are employed to examine the effects of selected factors on the degree of fiscal decentralization. The results show that most socioeconomic factors are very good determinants of aggregate fiscal decentralization. However, the percentage of non-whites has a negative effect, even though the opposite effect is expected.;The analyses also show that most political factors are not important determinants of fiscal decentralization. Unexpectedly, the New Federalism of the Reagan administration does have a positive relationship to fiscal decentralization, while the tax revolt does not have a significant relationship.;The results confirm the argument that fiscal decentralization patterns differ among various expenditure functions. Further, this study also demonstrates that different factors account for different patterns of fiscal decentralization.;This study shows that fiscal decentralization has weak relationships to revenue and expenditure patterns. It suggests that the degree of fiscal decentralization does not necessarily affect the distribution of expenditures among four major functions and reliances on major revenue sources.