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 2: Major State–Local Policy Challenges: Outside-the-Box Solutions Needed

Ronald C Fisher

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


Ronald C. Fisher1 INTRODUCTION What are the key or most fundamental fiscal policy challenges currently facing state and local governments in the United States? That simple question is the somewhat daunting topic for this chapter. Of course, this requires that the characteristics that make a challenge ‘key’ or ‘fundamental’ be identified. The objective here is to identify long-run issues that are fiscally important for states and localities, have been relatively intractable in a policy sense, and have a broad impact on society beyond the solely fiscal implications for subnational governments.2 I anticipate (and indeed hope) that the views expressed in this chapter will be somewhat controversial, challenging and contrary. They should be controversial because the reader may believe that the wrong issues have been selected and identified. Perhaps one believes that some of these do not meet the four characteristics noted above, or readers may believe that other issues are more fundamental or important than the six selected (see below). The discussion should be challenging because part of the objective is to stimulate creative thinking and new ideas that may help to resolve these difficulties, both for the state and local governments and for the broader society. And the issues may be a bit contrary from the perspective of economists who work on subnational government fiscal policy. Only two of the six issues discussed are tax policy issues; the others reflect spending or programmatic activities of state and local governments. This is not the first time it has been noted...

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