State and Local Fiscal Policy

State and Local Fiscal Policy

Thinking Outside the Box?

Studies in Fiscal Federalism and State–local Finance series

Edited by Sally Wallace

In this broad and illuminating work, experts on public finance discuss innovations in state and local tax policy that have been implemented or considered over the course of the last three decades. The authors provide original work that analyzes whether state and local governments have ‘gone outside the box’ to deal with the strains of current public finances or have gotten along by adhering to the status quo. This book provides researchers, students and policy makers with evaluations and analyses by well-known scholars in the area of state and local public finance of actual practices and analysis of potential policy changes for the future.

Chapter 1: Introduction and Overview

Sally Wallace

Subjects: economics and finance, public finance, public sector economics, politics and public policy, public policy


Sally Wallace The period since 1990 has presented a new set of challenges and opportunities for public finances in the USA. Demographic trends have put substantial pressure on non-discretionary public expenditures such as health care, legal challenges have put pressure on education financing, and aging infrastructure continues to call for more federal, state and local investment. Policy changes at the federal level such as changes in income tax policy affect states tied to the federal income tax, and revised and new mandates for issues such as water and air quality reduce state and local governments’ fiscal ‘space’. Control over many of these challenges is beyond the bailiwick of state and local governments, but dealing with their repercussions on public finances is a central job of state and local governments. Dealing with these forces has arguably become increasingly difficult due to domestic and international competition for economic development and the politics associated with holding down local taxes such as the property tax. The economic downturn of the early 2000s and the 2008 recession underscore the volatility of the economic landscape facing state and local governments. Because of the overarching landscape of pressures outside their control and difficult economic times, state and local governments are more hard-pressed than ever to find creative solutions to long-term financing issues. How can state and local governments cope? Is there room for more tax revenue at the subnational level? Do states need to reduce expenditures? Are there means of creative financing out there? These questions and...