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Democratic FederalismThe Economics, Politics, and Law of Federal Governance$
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Robert Inman and Daniel L. Rubinfeld

Print publication date: 2020

Print ISBN-13: 9780691202129

Published to Princeton Scholarship Online: January 2021

DOI: 10.23943/princeton/9780691202129.001.0001

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Fiscal Policy in the Federal Union

Fiscal Policy in the Federal Union

(p.210) 7 Fiscal Policy in the Federal Union
Democratic Federalism

Robert P. Inman

Daniel L. Rubinfeld

Princeton University Press

This chapter presents the guidelines for efficient taxation and debt financing. It also outlines the principles for efficient federal government spending within a federal public economy. Efficient tax policy should seek to minimize horizontal spillovers between local and provincial economies and vertical spillovers between the central and provincial and local governments. Efficient debt policy should seek to align debt payment to future benefits and control possible abuses of local borrowing via balanced-budget rules. Efficient spending focuses on the essential federal task of designing intergovernmental transfers, stressing when matching and lump-sum grants-in-aid are most appropriate to manage public goods, spillovers between states, and the provision of social insurance for differential income shocks across regions, states, or localities.

Keywords:   taxation, debt financing, federal government spending, federal public economy, tax policy, debt policy, spillovers, balanced-budget rules, intergovernmental transfers, grant-in-aid

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