Fiscal Federalism Initiative

Fiscal Federalism Initiative



The federal-state relationship is in the spotlight because of enormous fiscal challenges facing all levels of government. Tight budgets and slow economic growth are leading to discussions about appropriate levels of public spending and how costs should be allocated among different levels of government. Federal and state policy makers require solid data and analysis to engage in a meaningful debate and truly understand how their tax and spending policies affect other levels of government.

Why the Federal-State Relationship Matters

State and federal budgets and their economies are inseparably linked. Federal government grants make up an average of $1 out of every $3 in state revenues. Several of the largest state programs, such as Medicaid and education, are supported by these funds. Almost three-fourths of states tie their income tax calculations to the federal income tax. And many state economies are heavily reliant on federal activities within their borders. As a result, almost any federal policy change, from changing tax rules to military spending, will have an effect on the states.

Why Federal Deficit Reduction Matters to the States

 Over the coming years, the federal government is expected to consider changes to tax and spending policies to address the federal deficit.  These measures will undoubtedly impact the flow of federal funds to states and their revenues, and have a significant effect on state budgets. At the same time, states are facing a long recovery from the Great Recession and have less capacity than in the past to respond to changes in federal tax and spending policies. The resulting fiscal and economic impact on the states will affect the nation’s overall economic well-being.

How We Conduct Our Work

  • Research. We conduct original, non-partisan research and partner with other organizations to examine the connections between federal and state governments, with a focus on budget, tax, and regulatory policies. A particular emphasis will be on how federal deficit reduction proposals and actions will impact states.  
  • Convene.  We bring together federal and state decision makers to promote consideration of the fiscal and economic health of states when federal policy makers propose and evaluate various deficit reduction options. 
  • Inform. We give federal and state policy makers the data they need to enhance understanding of this multi-faceted relationship and make informed decisions in key policy areas where federal and state governments intersect.


March 7, 2014

Fiscal Federalism by the Numbers

See how federal and state finances are closely intertwined. More
January 7, 2014

The Distribution of Select Federal Tax Deductions and Credits Across the States

This interactive map highlights the state distribution of several federal tax deductions and credits. More
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