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Kweit reviews 'From Revenue Sharing to Deficit Sharing: General Revenue Sharing and Cities' by Bruce A. Wallin.

Enacted in 1972, general revenue sharing added a new dimension to the intergovernmental grant system in the United States of America. Unlike traditional categorical grant programs predicated on an externality or some other efficiency-based rationale, revenue sharing addressed issues of vertical and horizontal fiscal imbalances as well as political concerns about the growing influence of the federal bureaucracy in the fiscal affairs of states and localities. Scheduled to terminate at the end of fiscal year 1986, revenue sharing nevertheless remains a viable concept in reckoning the makeup of a well-ordered intergovernmental grant system. It is with an eye toward future deliberations about such a program that this paper is written. The findings from six years of research at the Brookings Institution are drawn upon, and a review is given of the lessons learned about the role of such a program and how the design of any future revenue sharing program might be enhanced, with specific emphasis on greater equity and more effective integration of federal and state roles in addressing the causes and consequences of local-area fiscal disparities.

The Russian system of federalism is in the midst of a difficult transition from a highly centralized to a more decentralized regime. It is a reasonable proposition that the final solution will somehow be a kind of assignment system, but it is unclear what path will have to be followed to reach that stated goal. The present system of revenue sharing is based on shared taxes and subventions. It is a two-tiered system, with the federal government laying down the rules for central–oblast sharing, and each oblast making the rules for the local governments within its jurisdiction. This paper updates a World Bank analysis of the revenue-sharing system in the Russian Federation, using actual data for 1992 and the most current tax-sharing rules and adds some empirical evidence to what is known about the intra-oblast dimension of revenue sharing.

Problems of intergovernmental policy coordination can take many forms and are becoming increasingly important with continuing economic integration. In this paper we focus on the fiscal competition problem where the non-cooperative choice of taxes and transfers among governments typically leads to suboptimal outcome. We look at the effect of two widely used corrective policies: revenue sharing and expenditure sharing (or intergovernmental matching grants). Our main result is that these two corrective policies have opposite effects depending on the form of competition between governments, namely whether governments compete in taxes or expenditures. More precisely, for any form of competition, revenue sharing is desirable exactly when expenditure sharing is not and vice versa. The implication is that the choice of the optimal corrective policy requires a complete understanding of the underlying non-cooperative behaviour among governments. Our second main result is that neither revenue sharing or expenditure sharing can be sustained as a Nash equilibrium among governments, although all governments would benefit from one of these two corrective policies. Central intervention is therefore inevitable unless governments can pre-commit to the optimal corrective policy before setting their fiscal policies.

Problems of intergovernmental policy coordination can take many forms and are becoming increasingly important with continuing economic integration. In this paper we focus on the fiscal competition problem where the non-cooperative choice of taxes and transfers among governments typically leads to suboptimal outcome. We look at the effect of two widely used corrective policies: revenue sharing and expenditure sharing (or intergovernmental matching grants). Our main result is that these two corrective policies have opposite effects depending on the form of competition between governments, namely whether governments compete in taxes or expenditures. More precisely, for any form of competition, revenue sharing is desirable exactly when expenditure sharing is not and vice versa. The implication is that the choice of the optimal corrective policy requires a complete understanding of the underlying non-cooperative behaviour among governments. Our second main result is that neither revenue sharing or expenditure sharing can be sustained as a Nash equilibrium among governments, although all governments would benefit from one of these two corrective policies. Central intervention is therefore inevitable unless governments can pre-commit to the optimal corrective policy before setting their fiscal policies.

Item 925 ; Includes index. ; "June 1981." ; Cover title. ; Mode of access: Internet.