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The complex uncoordinated system ofintergovernmental transfers produces a system with both low transparency andlow accountability. However, because of the degree of concern in the U.S.around the principle of financial responsibility, accountability has beenenhanced via the extensive use of conditional transfers.

A benefit of the systematic use ofconditional grants is a relatively high degree of transparency. While it istrue that the U.S. system of intergovernmental relations constitutes a complexmatrix, the importance attached to the principle of financial responsibilitymeans that citizens are able to identify the site where decisions are taken. Ascompared to the relatively closed system of intergovernmental relations inthose federations utilising executive federalism, the bargaining ‘free for all’ which takes place in the U.S.Congress is relatively open.

3. Political Culture

United States’ society is characterized byrelative homogeneity and the process of intergovernmental relations and fiscalarrangements reflects and reinforces this characteristic.

Overall, cultural homogeneity is reflectedand reinforced by the conditional transfer system. The federal government hasbeen able to use conditional transfers to develop a relatively uniform set ofnation-wide programs and services. While states and localities are allowed somediscretion in regard to implementation of these programs, the over-archingprinciple has been support for uniform federation-wide standards.

The political culture of the United Stateshas been described as being civic, republican, and participatory.44 While thereare regional variations, this political culture places an emphasis on theindividual, as opposed to the group, as the primary political unit. It is inthis context that the systems of intergovernmental relations and fiscaltransfers must be understood.

Rather than relating to each other ascoherent entities, the governments of the U.S. relate as congeries ofinterests. That is, in the federations utilising executive federalism (such asCanada and Germany) each government defines a constituent-unit interest whichis a compromise worked out within the political community of the constituentunit. That collective interest is then represented by the executive of theconstituent-unit government in intergovernmental bargaining. In the U.S., bycontrast, constituent-unit interests are not defined at the state-governmentlevel and then represented; rather, each interest represents itself in theuncoordinated bargaining that occurs in Congress. State legislators, and stateand local executive agencies pursue what they perceive to be in theirindividual or institutional interests. Definition and representation of acollective, state-wide interest has not been in practice the overridingconcern.

The fiscal transfer system is also in accordwith a political culture rooted in individualism. The lack of an overarchingequalization system is consonant with a focus on individuals, rather than onstates as collectivities. The tolerance for horizontal fiscal imbalances amongstates may be related to the belief that individuals have the ability to avoidthe effects of such imbalances by relocating to more prosperous areas. Suchrelocation is in practice facilitated by the relative cultural homogeneity ofthe United States since there are no linguistic barriers to overcome whenmoving from one region of the country to another.

1 Ronald L. Watts, Comparing FederalSystems (2nd ed.; Montreal and Kingston:McGill-Queen's University Press, 1999),21.

2 Daniel Elazar, Federal Systems of theWorld: A Handbook of Federal, Confederal and Autonomy Arrangements (Harlow, Essex, UK: Longman, 1991), 311.

3 Ibid., 311.

4 Ibid.

5 Ibid., 312.

6 Janet G. Stotsky and Emil M. Sunley, United States, in TeresaTer-Minassian, ed., Fiscal Federalism in Theory andPractice (Washington: International Monetary Fund,1997), 359-60.

7 Ronald L. Watts, The Spending Power inFederal Systems: A Comparative Study (Kingston:Institute of Intergovernmenal Relations, 1999), 10.

8 Stotsky and Sunley, 364.

9 Ibid., 368.

10 Ibid., 361.

11 Ibid.

12 Ibid., 368.

13 Watts, Spending, 10.

14 Ibid.,11.

15 Ibid.

16 Stotsky and Sunley, 370-71.

17 Watts, Spending, 10.

18 Elazar, 313.

19 Jennifer Smith, Judicial Review and Modern Federalism, inHerman Bakvis and William M. Chandler, eds., Federalism and the Role of the State(Toronto: University of Toronto Press, 1987), 114.

20 Robert C. Vipond, Canadian and American Federalism: AComparative Perspective, in Martin Westmacott and Hugh Mellon, eds.,Challenges to Canadian Federalism (Scarborough: Prentice-Hall Canada, 1998), 19.

21 André Bzdera, Comparative Analysis ofFederal High Courts: A Political Theory of Judicial Review, Canadian Journal of Political Science26:1 (March 1993), 9.

22 Smith, 116.

23 Watts, Spending, 12.

24 Ronald L. Watts, Comment: The Value of ComparativePerspectives, in K.G. Banting and D.M. Brown, eds., The Future of Fiscal Federalism(Kingston: School of Policy Studies, Queen’s University, 1994),327.

25 During the period under consideration, state governments weregenerally experiencing surpluses.

26 Table 1 in the Appendix shows that Alaska has very high percapita expenditures relative to the national average. Thus, the Pacificregion data is heavily influenced by Alaska.

27 As was true for expenditures, revenues per capita in Alaska arevery high relative to the national average, and this is reflected in the datafor the Pacific region.

28 The powers reserved for the states arein three broad categories: (i) The police power, which includes powers such asthe regulation of hospitals and doctors, zoning laws, child labour laws,and working hours; (ii) Public services, which include schools, police force,welfare services, public health, transporation services, and agricultural andresearch services; and (iii) The Local Government System. See Zimmerman(1991) for more information.

29 The federal government is involved in the financing of healthcare in several ways. Medicaid involves financial assistance to thestates. However, the federal government administers and financesMedicare, which is a health care program directed to the aged. As well,the federal government finances the Public Health Service, veterans hospitals,and medical research and teaching.

30 In addition to the intergovernmental financial assistanceprograms for income redistribution, the federal government also administers andfinances the food stamps program, the Head Start program, which providespreschooling for children of low-income families, Pell grants, which providesfunding for college education for children of low-income families, and theLow-Income Home Energy Assistance Program (LIHEAP).

31 Note that some economists argue that transfers directed towardscorrecting for horizontal imbalances create inefficiencies in that they resultin individuals staying in less productive regions.

32 For a description of the General Revenue Sharing program, seeAronson and Hilley (1986), pp. 56-58.

3333 Tax effort is measured as the ratioof total tax revenue to personal income.

34 These inequities among local governments have led poorer regionsto file lawsuits against the state. School districts in several stateshave won court battles arguing that, since the state is responsible forcreating the system of local governments, it is responsible for addressing theinequitable distribution of tax bases. For a discussion of this, see J.Stonecash (1998), pp. 77-78.

35 The Old-Age, Survivors, and Disability Insurance (OASDI) programis the largest social insurance program in the United States. The secondlargest is Medicare. Both programs are administered and financed by thefederal government and both provide insurance and redistribute income.The OASDI is financed by a payroll tax that is shared between employers andemployees. Hospital costs in the Medicare program are financed through apayroll tax.

36 C. Tiebout (1956), A Pure Theory of Local Expenditure,Journal of Political Economy, 64, 416-24.

37 Ronald L. Watts, The Spending Power inFederal Systems: A Comparative Study (Kingston:Institute of Intergovernmenal Relations, 1999), 11.

38 Herman B. Leonard, Jay H. Walder, andJosé A. Acevedo,The Federal Budget and the States: Fiscal Year 1998 (Cambridge, Mass., U.S.A.: TaubmanCenter for State and Local Government, 1999), 17.

39 Ibid., 2-3.

40 Paul I. Posner, The Politics ofUnfunded Mandates: Whither Federalism (Washington:Georgetown University Press, 1998), 4, 13.

41 Ibid., 6.

42 Ibid., 206.

43 Ibid., 204.

44 Daniel Elazar, Federal Systems of theWorld: A Handbook of Federal, Confederal and Autonomy Arrangements (Harlow, Essex, UK: Longman, 1991), 313.

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