United States

Abstract

The fiscal federal system in the United States is highly decentralized with strong revenue-raising authority as well as a high degree of spending discretion at the state and local levels. The result is a remarkable amount of diversity in tax structures and spending across the states, a characteristic we document in this chapter. Federal grants to state and local governments are important for financing specific programs, but unlike many other federations, there is no federal grant whose purpose is to redistribute resources across states. We highlight and discuss trends in the size of the government, the vertical distribution across levels of government, and the composition of spending. Like many other countries, the United States faces challenges associated with an aging population and rising healthcare costs. All three levels of government face the tasks of providing income security for the aging population and of how to fund education and other desired services as spending on healthcare continues to rise.