The three levels of government are interconnected fiscally. That is, money flows from one the other. This generally means that it flows from the top to bottom, but it does so in many different ways depending on the specific item of spending.
This is what "fiscal federalism" really refers to.
One of the things I'm hoping to make sensible over the semester is how this flow of money works.
Here are other definitions of the term.
- Wikipedia: Fiscal Federalism.
fiscal federalism is concerned with "understanding which functions and instruments are best centralized and which are best placed in the sphere of decentralized levels of government" (Oates, 1999). In other words, it is the study of how competencies (expenditure side) and fiscal instruments (revenue side) are allocated across different (vertical) layers of the administration. An important part of its subject matter is the system of transfer payments or grants by which a central government shares its revenues with lower levels of government. Federal governments use this power to enforce national rules and standards.
- Congressional Research Service: Fiscal Federalism: Theory and Practice.
The field of fiscal federalism studies how to divide responsibilities (including finances) among federal, state, and local governments to improve economic efficiency and achieve various public policy objectives. Determining the optimal division of responsibilities is difficult because of varying subjective views about what the role of government should be. As a result, fiscal federalism research generally renders no judgment on the proper level of total government intervention or what types of services governments should provide. The research focuses instead on how responsibilities are assigned across multiple layers of government once policymakers have decided to implement a given policy, and what trade-offs may be involved in administering it.
National
- Enumerated Powers
- - Income Taxes
- - Payroll Taxes
- - Corporate Income Taxes
- - Tariffs
State
- Reserved Powers
- - Federal Funds
- - Sales Taxes
- - Fines
- - Fees
Local
- Implementation of Reserved Powers
- Basic Services and Infrastructure
- - Property Taxes
- - Sales
