Panel Paper: Fiscal Federalism in Recession and Recovery

Saturday, November 10, 2018
Truman - Mezz Level (Marriott Wardman Park)

*Names in bold indicate Presenter

Tracy Gordon, Urban Institute

Nine years into a national economic recovery, some American communities continue to struggle. Recent evidence of declining regional income convergence and attention to the social and political costs of alienation have refocused attention on place-based policies. Although many authors have advanced arguments for and against these policies, few have acknowledged that the United States already has spatially targeted assistance through federal grants to state and local governments. This paper will examine the extent to which roughly $700 billion a year in federal spending flows to places that “need” it most, explore various definitions of “need” and benefit, and address inherent tensions between smoothing out local fiscal disparities and rewarding revenue and spending effort (e.g., matching and maintenance of effort requirements drive the correlation between local fiscal capacity and grants towards zero). The paper will further review how federal grants have been adjusted in economic downturns to direct money to affected places and evaluate proposals to reinstate these program changes as a permanent system of automatic fiscal stabilizers.