Distinguished Lecture on Economics in Government: Strengthening the Economy by Rethinking the Role of Federal and State Governments

Abstract

T his lecture brings together two subjects that are not often discussed together: national economic policy and the structure of American federalism. My thesis is that the policies needed to improve the health of the U.S. economy over the next decade or two require a new look at the division of responsibilities between the federal government and the states. In particular, I will argue that the states should have much clearer responsibility for most kinds of public investment, especially for improving the skills of the labor force and upgrading public infrastructure. The federal government should concentrate on a different set of missions, including interaction with the rest of the world, strengthening social insurance, and contributing to national saving by running a surplus in the unified federal budget.This line of reasoning suggests devolution to the states of federal spending programs for education, housing, training and most other types of investment -a move that would clarify which level of government is accountable for performance in these areas and make a federal surplus easier to achieve. The added responsibilities would require the states to find more effective ways of financing their activities. I will argue for a new approach to state taxation, called "uniform shared taxes." The idea is that the states, with the support of the federal government, should move toward greater uniformity in business and consumption taxation, by enacting one or more common taxes and sharing the proceeds on a formula basis.• Alice M. Rivlin is Senior Fellow, The Brookings Institution, Washington, D.C.

The impact of government decentralization on county health spending for the uninsured in California

“…Another source of funds for indigent health services is the Disproportionate Share Hospital (DSH) program, established by two pieces of legislation, SB 1255and SB 855, between 1989and 1991. This program has enabled the creation of supplemental state and federal payments to hospitals that serve disproportionate numbers of indigent patients.…”

“…Realignment) transferred authority for the state's major safety-net programs, including mental health, social services, and general health, from the state to the counties. California's form of decentralization is similar to that described by Rivlin (1991), in which local jurisdictions draw from a larger, shared revenue base, but have control in allocating resources among various public services. While Scheffler, Wallace, Hu, Garrett, and Bloom (2000) have looked at the impact of Realignment on mental health services, this is the first study looking at its effect on general health services for the uninsured.…”

Institutions, quality competition and public service provision: The case of public education

“…Thus, the normal workings of democratic government will tend to result in smaller government than would be socially optimal. Rivlin (1991 ) further suggested that some functions of government (e.g., particularly revenue raising and income redistribution) can be provided more efficiently throug h more centralized government. This view has been supported by other researchers looking at the effects of policy design and implementation (see Peterson et al, 1986).…”

Intergovernmental competition, voice and exit options and the design of fiscal structure

“…The recent proposal in Rivlin (1991) for the reform of the fiscal constitution demonstrates the conventional view. "Uniform shared taxes" are argued to be a solution to many problems (e.g., low savings rate and inadequate government production) in our economy.…”

“…McKenzie and Staff (1978) and Lee (1985) view these activities as legal tax cartel arrangements. That conventional analysis predicts that benevolent gov ernments do not exploit such arrangements is evident from the above discussion of Rivlin's (1991) proposal for "uniform shared taxes." A prediction from the constitutional economics model is that, not only do governments exploit such arrangements, governments actively create such arrangements since they lower the abilities of taxpayers to utilize voice and exit options to prevent unpopular policies which policymak ers wish to deliver to them.…”