Spending on Social Welfare Programs in Rich and Poor States. Final Report.. a. Fiscal Capacity

07/01/2004

Overall, research has found a positive association between fiscal capacity and social welfare spending. One study (Mogull, 1978) found that primarily fiscal resources, measured by per capita personal income and federal aid, determined state and local expenditures on antipoverty programs. Other studies (Jennings, 1980; Orr, 1976; Plotnick & Winters, 1985; Dye, 1969) came to similar conclusions.

Although a strong association appears to exist between fiscal capacity and social welfare spending, Mogull (1989) notes that this correlation fails to explain the causal basis for the association. Most researchers, however, contend that the higher the taxpayers income, the better able the state is to fund the additional services. This higher per capita income reduces the financial burden on the state.

Another factor to consider is the role that federal funding plays. Douglas and Flores (1998) found that federal government grants target states with the least ability to pay and the highest need for services. Without considering federal spending, in 1995, high-ability states (i.e., 10 states with the highest levels of personal income per poor child) spent 4.3 times as much as low- ability states (i.e., 10 states with the lowest levels). When federal funding is included, high-ability states spend only 1.82 times as much.

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