Local sales taxes and intergovernmental grants in fiscal federalism
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The U.S. Federalism has been concerned with how to best place functions and instruments in a decentralized system. Based on the highlights in the fiscal federalism literatures, this dissertation addresses three issues by focusing on two fiscal instruments in county governments – local sales tax and intergovernmental grants. First, this dissertation examines the determinants of local sales tax adoption and rates considering both the internal condition of local heterogeneity and the external condition of fiscal interaction. The empirical examinations of the determinants provide strong evidence that fiscal interaction is important to the decision to adopt local sales tax and to set local sales tax rate. Moreover, the political conflicts of interests between the actors of representatives and voters-taxpayers are observed in the adoption and rate setting. Second, this dissertation examines the interactions between the two fiscal instruments that have different purposes. Assuming that local sales taxes are local authority and power, and that intergovernmental grants are the upper-level support for and control to the lower-level, this dissertation finds that the two fiscal instruments have reverse relationships. Third, this dissertation examines the budgetary effects of the two fiscal instruments on property tax burdens, revenues, and own-source revenues in county governments. Both fiscal instruments are empirically shown to increase local revenues, while only local sales taxes statistically expand local own-source revenues. Moreover, local sales taxes reduce property tax burdens, while intergovernmental grants raise the burdens. Unlike the existing literatures that focus on local jurisdictions within states, another contribution of this dissertation is a large data set that covers all U.S. county governments for a long-period. However, the empirical examinations clarify limitations that intra-jurisdictional competition matters in U.S. fiscal federalism. The contributions and limitations provide the foundation the future research that will handle intra-jurisdictional competition, and better tackle the details of fiscal federalism.