Measuring Fiscal Disparities across the U.S. States

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Executive Summary

This report measures the fiscal disparities across the 50 states in fiscal year 2002 by looking at each state's revenue capacity, expenditure need, and overall level of fiscal capacity.¹ Because tax authority and expenditure responsibilities are assigned to different levels of governments across different states, we combine information about revenues raised and expenditure needs for each state and its local governments.² We use a methodology based on the underlying economic and demographic conditions found in the states rather than actual revenue and expenditure levels. A state's revenue capacity measures the resources its state and local governments can tap to finance public services. A state's expenditure need gauges the extent to which its state and local governments face conditions that raise or lower the cost of and need for public services. Fiscal capacity assesses each state's ability to raise revenues relative to its expenditure needs. This is the first such study undertaken by the Tax Policy Center in collaboration with the New England Public Policy Center at the Federal Reserve Bank of Boston.

Notes from this section of the report

1. The District of Columbia has been excluded from this study. D.C.'s characteristics resemble those of a municipality rather than a state; therefore, its results would not be comparable to those of other states. All "national" averages in this study are averages of the 50 states and exclude D.C. as well as other U.S. nonstate entities.

2. Thus, when we refer to a state we mean the state and all local governments, including counties, municipalities, townships, special districts, and school districts.

Note: This report is available in its entirety in the Portable Document Format (PDF).

The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

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