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An Introduction to State and Local Public Finance
Thomas A. Garrett and John C. Leatherman
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VII. Chapter Conclusion
This chapter provided an introduction to state and local public financing. The chapter began by providing an overview of the growth of state and local governments over the past forty years. The important sources of revenue - sales taxes, income taxes, corporate income taxes, excise tax, and property taxes - were all discussed in the second section of the chapter. With an understanding of the basic trends in state and local governments and the principle means of financing, the third section introduced the reader to the basic economic tools of tax analysis. Important concepts such as efficiency and the deadweight loss of taxation were presented. Tax incidence and the efficiency/equity tradeoff were also discussed. The third section concluded by presenting two models of optimal taxation. The second part of the chapter presented several applications in public finance. These included revenue forecasting, cost-benefit analysis, and fiscal impact analysis.
While this chapter covered the basic trends and issues surrounding state and local public finance, there are many other aspects of state and local public finance that were discussed here. One important issue facing all state and local governments is revenue stability. The stability of revenues is crucial in order to ensure a constant revenue stream during changing economic conditions. Each local or state government needs to decide on the appropriate mix of taxes that will ensure a stable revenue stream. Another area of state and local public finance is debt financing. Like the federal government, state and local governments often issue bonds in order to generate monies to fund public projects such as parking lots, libraries, parks, etc. Understanding the tolerable level of debt in terms of future tax revenues is an issue faced by all localities.
The number of public finance issues impacting state and local governments is almost limitless. While we cannot do justice to all issues here, we refer the reader to the public finance textbooks presented in the section of the chapter. These texts not only contain chapters on various issues of state and local public finance, they also contain many references to scholarly articles covering a myriad of public finance issues.
As the demand for local government goods and services continues to increase, public finance issues will have a growing impact on all of our lives. Local officials will discuss issues such as tax changes, tax implementation, debt financing, finance reform, etc. While public finance decisions are often made by these few individuals in power, their decisions will have a direct impact on the lives of all residents residing in the affected locality. We hope this chapter has provided the reader with the basic tools necessary to make educated, critical evaluations of public finance issues that may arise in their community.