Fiscal Federalism Spending and Taxes Essay

Download this Essay in word format (.doc)

Note: Sample below may appear distorted but all corresponding word document files contain proper formatting

Excerpt from Essay:

Foremost, when they occur, they generate massive financial setbacks for the institution implementing them as they generally require a large sum of money. "It is difficult to properly handle investments in public budgets. The rewards are spread out over an extended period of time while the cost or the pain of investing is immediate. That makes if difficult to finance public investments" (Penner, 2008).

For the state and local governments to be able to fund their investments, they should organize their incomes into two categories: current operating capital and capital component. A simple accounting method would help them benefit immediately from the investment. In this order of ideas, given that the investment is amortized and the amortization is registered as part of operating expenses, the users of the investments would immediately benefit from it, and also pay it at the same time (Penner, 2008).

Another means to deal with the upcoming investments or the financial coverage of other needs likely to emerge should revolve around the constitution of rainy days funds. These would allow each state institution to govern itself in an efficient manner and are even more so worthy as they have saved several state institutions throughout the 2001 economic recession (Ruben, McGuire and Kellam, 2007). They are also referred to as budget stabilization and are constituted from funds which "allow states to set aside excess revenue for use in times of unexpected revenue shortfall of budget deficit" (Rueben and Rosenberg, 2008). The amount of rainy day funds each institution allocates depends on various features. In 2007 for instance, rainy day funds accounted for 1% of all institutional funds in Michigan and Wisconsin, 20% in North Dakota and 50% in Alaska. The other states found their rainy day funds somewhere between the extremes of 1% and 50% of total funds.

Unconditioned aid systems should not be implemented in order to stimulate state and local institutions to govern themselves with the taxes collected throughout a fiscal year. If the government constantly steps in and resolves the financial shortages of a state organization, that respective institution will never learn how to properly administrate their funds, assets and debts.

Then, there is the matter of paying back. However it cannot be generalized that state institutions do not timely and efficiently pay their debts, there were several situations when this occurred. Otherwise put, if they were to offer unconditional aid systems, federal and state institutions would face the risk of not being able to recuperate their money in time. This means that they would be unable to finance further investments of social, economic, technological, environmental or political improvements. The delay in these investments would materialize in citizens' dissatisfaction.

Not allowing unconditional aid systems can also be regarded as a means of improving the living standards of the populations in the respective communities. This is basically achieved through an institutional need to attract more funds. Most funds are retrieved through taxes, but since increasing the tax rates is not the most desirable solution, state and local institutions would focus on creating more development opportunities, which generate more taxable incomes. Therefore, these measures, supported by not allowing unconditional aid systems will stimulate investors to operate in the desirable areas, will create more jobs and will increase the population's wages.


The unconditional aid system, or General Revenue Sharing is a system implemented by President Richard Nixon in 1972 and it is based on the idea that all state institutions should have easy access to funds. However the plan was well received at the time, today it has lost its popularity. Proof of this stands the fact that the federal government has refused its implementation and state governments only limitedly use it.


Penner, R.G., June 10, 2008, Budgeting for Capital Investment, Statement before the House of Representatives Committee on Transportation and Infrastructure

Rueben, K., McGuire, T., Kellam, S., October 2007, Navigating State and Local Finances, Lincoln Institute of Land Policy

Rueben, K., Rosenberg, C., April 28, 2008, State and Local Tax Policy: What are rainy day funds and how do they work? Tax Policy Center

Woolley, J., Peters, G., 1999, Richard Nixon, the American Presidency Project, accessed on November 14, 2008

2006, Revenue Sharing, Gerald R. Ford Presidential Library…[continue]

Cite This Essay:

"Fiscal Federalism Spending And Taxes" (2008, November 15) Retrieved December 8, 2016, from

"Fiscal Federalism Spending And Taxes" 15 November 2008. Web.8 December. 2016. <>

"Fiscal Federalism Spending And Taxes", 15 November 2008, Accessed.8 December. 2016,

Other Documents Pertaining To This Topic

  • Fiscal Federalism on Finance and Budgeting in

    fiscal federalism on finance and budgeting in public organizations. Federalism is a political concept in which groups are bound together by a representative governing body. This is usually constitutionally divided between a central authority and political units; in the United States, the Federal Government and the 50 State Governments. The issue of federalism was actual controversial during America's revolutionary period when some feared that too much power at the Federal

  • Public Budgeting and Fiscal Federalism

    Fiscal Federalism To the Cato Institute: The Cato Institute policy statement on "Fiscal Federalism" is an excellent example of 'throwing the baby out with the bath water.' Yes, there may be unnecessary government bureaucracy involved in the awarding of federal grants to states. But the need for more efficiency does not mean that the entire program should be scrapped. During the recent 2008 recession, many states were cash-strapped and desperately needed funds

  • Benefit Analysis and Risk Assessment

    This could pose additional threats (Brimacombe, Antunes and McIntyre, 2001). There are also two arguments which reveal the overstatement of the estimations. The first refers to the fact that the tax structures are taken as constants, when in fact modifications could occur and result in the allocation of more funds to the health care sector. Then, the second argument is that the business, technology and administrative communities present the population

  • Dwarfed in Terms of Physical

    According to Kelly and Ransom (2000), by state law, Trenton, like other cities in New Jersey, is not allowed to increase its annual budget by more than 3.5% per year absent a referendum that approves such larger increases. For the state capital, Kelly and Ransom note that, "Property taxes are not a viable source of revenue, as much of the city of Trenton is owned by the state of

  • U S Census Bureau Projected That

    The 16th Amendment was the first to be passed in the 20th century. It allowed incomes to be taxed as a clear response to the Supreme Court decision in the Pollock v Farmers' Loan and Trust Company (Fonder and Shaffrey 2002). Congress previously passed an income tax law in 1894, which the Supreme Court found to be unconstitutional, not being divided among the states by population. Before the 16th Amendment,

  • ECB Can Be Successful at Emulating the

    ECB can be successful at emulating the strategic model set forth by the German Bundesbank. The discussion will focus on the fact that the ECB is facing different problems as it is still in the developmental phases. The investigation will seek to determine whether the tools of the Bundesbank can provide support for the ECB in achieving economic stability in the European Monetary Union. Research about this particular topic is

  • Daniels When City and Country Collide Thomas

    Daniels When City and Country Collide Thomas L. Daniel's When City and Country Collide provides an interesting and largely effective analysis of the spread of urban sprawl in America. This paper outlines the key themes and findings within Daniel's book, and discusses the relationship between Daniel's book and Managing Urban America, by David R. Morgan and Robert E. England. Overall, When City and Country Collide provides a useful look into how

Read Full Essay
Copyright 2016 . All Rights Reserved