Previous literature widely assumes that taxes are optimized in local public finance while expenditures adjust residually. This paper endogenizes the choice of the optimization variable. In particular, it analyzes how federal policy toward local governments influences the way local governments...

In the literature on fiscal federalism, vertical fiscal imbalances have been widely studied, while the theme of horizontal fiscal imbalances and inequality between local governments' fiscal capacities is still less explored. This paper contributes to fill the gap. A new method to compute fiscal...

We propose a new source of cross-sectional variation that may identify causal impacts of government spending on the economy. We use the fact that a large number of federal spending programs depend on local population levels. Every ten years, the Census provides a count of local populations....