Intergovernmental Fiscal Relations and Social Welfare Policy

Several decades of experience with income redistribution policies have not eradicated the problem of poverty in the U.S. In fact, in the most recent decade there is evidence that the income distribution has become more disparate and that the number of poor has increased (Bradsher, 1995, Atkinson, 1995 and Atkinson, Rainwater, and Smeeding, 1995). These facts have led to a growing frustration with welfare policy among both conservatives and liberals. One possible (partial) source of the ineffectiveness of welfare policy in the U.S. is that responsibility for this government function has been placed at the wrong levels or units of government. In other words, the responsibility for financing and delivering welfare programs may be in the wrong governmental hands. The conventional wisdom has been that redistribution policies should be centralized because of the public good nature of redistribution and because of the potential for migration to undue any redistribution undertaken at the subnational level. Current political thinking in the U.S. and many other developed countries is that subnational levels of government may be more effective at designing and delivering welfare policy because they are closer to their voters and recipient populations and therefore have a better understanding of the needs and tastes of their residents. The issue explored in this chapter is whether the delivery of welfare policy would be improved by decentralization of governmental responsibility.