Strength of the American decentralized fiscal management

Abstract

This thesis studies about the patterns of debt accumulation of the state and local governments in the United States, particularly by focusing on how intergovernmental fiscal relations, fiscal institutions, capital market, and electoral mechanisms might potentially influence the patterns of debt accumulation of the state and local governments. I develop empirical models to show that both fiscal institutions and intergovernmental fiscal relations have significant impacts on the patterns of debt accumulation of the state and local governments. I also discuss that political accountability and well-functioning capital market are important in stabilizing the patterns of debt management of the state and local governments. From the empirical analysis of the patterns of the debt accumulation of the state and local governments, I claim that US fiscal management is unique particularly in that there are a variety of patterns on how the state governments regulate the fiscal management of themselves and that of their subnational governments. From the empirical results, I suggest a possibility that the state governments sometimes supplement the lack of capacity of local governments in borrowing when some local governments face severer resource constraints in their fiscal decisions as well as are faced with the limitations on borrowing capacities. That is how I claim that the flexibility in the intergovernmental fiscal relationships is one of the advantages of the decentralized fiscal management in the United States.