Arnold Kling  

Fiscal Federalism's Failure

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Below is an excerpt from a video conference with Michael Greve, Reihan Salam, and me on the problems with fiscal federalism in practice. The full half-hour video is here. And, yes, I also created a podcast.

It is a good discussion, but quite depressing. A naive view of federalism is that it encourages robust competition at the state and local level. Unfortunately, the reality is that competition gets suppressed, and the incentives are rigged in favor of government expansion.

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COMMENTS (3 to date)
Leo writes:
david writes:

If you want fiscal federalism, you have to remove the state ability to coercively enact what are effectively additional taxes or restrictions, and limit them to spending what the federal government gives them.

Otherwise competition obliges states to engage in corporatism. If you permit the enforcement of monopolistic collusion, then collusion is always the attractor.

Unfortunately, this is fiscally equivalent to having state power arise from the federal rather than the state governments - where states exercise only what the federal government deigns to grant. In short, exactly the reverse of what philosophically underpins the US federal system, where DC is a compact between the people and the states. At best the federal government bribes states into line but this already enrages originalists and is hilariously inefficient.

Wayne writes:

Prof Kling,

I love the show idea. I check out here and there. But the discussion there is rarely rigorous. You should do this more regularly. I subscribed to your channel!

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