['°', 'PAGE', '8', '.', 'LEVEL', '1', '-', '123', 'OF', '227', 'STORIES', 'Copyright', '1994', 'Information', 'Access', 'Company,', 'a', 'Thomson', 'Corporation', 'Company', 'ASAP', 'Copyright', '1994', 'L.P.', 'Cookingham', 'Institute', 'of', 'Public', 'Affairs', 'American', 'Review', 'of', 'Public', 'Administration', 'December,', '1994', 'SECTION:', 'Vol.', '24', ';', 'No.', '4', ';', 'Pg.', '339;', 'ISSN:', '0275-0740', 'LENGTH:', '5164', 'words', 'HEADLINE:', 'Vertical', 'fiscal', 'balance', 'and', 'horizontal', 'fiscal', 'diversity', 'in', 'the', 'U.S.', 'federal', 'system:', 'what', 'might', 'common', 'shared', 'taxes', 'do?', 'BYLINE:', 'Mikesell,', 'John', 'L.', 'BODY:', 'The', '50', 'state', 'governments', 'in', 'the', 'American', 'federal', 'system', 'enjoy', 'considerable', 'fiscal', 'freedom', 'as', 'each', 'seeks', 'to', 'provide', 'government', 'services', 'for', 'its', 'own', 'constituency.', 'This', 'freedom', 'allows', 'states', 'to', 'adjust', 'both', 'types', 'and', 'levels', 'of', 'government', 'services', 'to', 'the', 'preferences', 'of', 'a', 'heterogeneous', 'population.', 'Because', 'states', 'have', 'considerable', 'responsibility', 'for', 'raising', 'their', 'own', 'revenue,', 'states', 'can', 'and', 'do', 'differ', 'considerably', 'in', 'the', 'size', 'of', 'their', 'state-local', 'public', 'sectors', 'relative', 'to', 'their', 'economies,', 'and', 'states', 'reach', 'dramatically', 'different', 'decisions', 'in', 'regard', 'to', 'how', 'the', 'revenue', 'is', 'obtained,', 'in', 'other', 'words,', 'what', 'sectors', 'of', 'their', 'economies', 'will', 'bear', 'the', 'cost', 'of', 'state-local', 'government', 'service.', 'Such', 'diversity', 'of', 'service', 'and', 'finance', 'would', 'be', 'impossible', 'without', 'fiscal', 'independence', 'that', 'encompasses', 'both', 'revenue', 'raising', 'and', 'decisions', 'about', 'spending.', 'Independent', 'revenue', 'systems', 'allow', 'state', 'independence', 'and', 'the', 'capacity', 'for', 'fiscal', 'response.', 'Without', 'the', 'ability', 'to', 'raise', 'their', 'own', 'revenue,', 'state', 'governments', '(and', 'their', 'included', 'localities)', 'would', 'remain', 'dependents', 'of', 'the', 'central', 'government,(1)', 'Furthermore,', 'without', 'the', 'need', 'to', 'raise', 'that', 'revenue,', 'these', 'subordinate', 'units', 'would', 'recognize', 'only', 'the', 'rewards', 'from', 'their', 'expenditures--they', 'need', 'not', 'be', 'conscious', 'of', 'the', 'cost', 'of', 'that', 'activity,', 'as', 'another', 'unit’s', 'revenue', 'system', 'would', 'extract', 'the', 'resources', 'from', 'private', 'use.', 'Indeed,', 'Wallace', 'Oates', 'argues', 'that', 'if', 'these', 'governments', '"are', 'to', 'have', 'real', 'and', 'effective', 'fiscal', 'discretion,', 'they', 'must', 'raise', 'a', 'significant', 'portion', 'of', 'their', 'funds', 'from', 'their', 'own', 'revenue', 'sources"', '(Oates,', '1993,', 'p.', '241).', 'That', 'is', 'because', 'central', 'funds', 'almost', 'certainly', 'bring', 'intrusion', '(strings)', 'into', 'spending', 'choices', 'and', 'because', 'funding', 'from', 'above', 'reduces', 'incentive', 'for', 'responsible', 'recipient', 'choice,', 'In', 'a', 'geographically,', 'socially,', 'and', 'economically', 'diverse', 'country,', 'a', 'federal', 'structure', 'with,', 'state', 'revenue', 'responsibility', 'would', 'produce', 'substantial', 'differences', 'in', 'states’', 'fundamental', 'fiscal', 'choices--how', 'much', 'revenue', 'they', 'raise', 'and', 'spend,', 'how', 'they', 'raise', 'that', 'revenue,', 'and', 'how', 'they', 'spend', 'those', 'funds.', 'Not', 'all', 'federal', 'systems', 'use', 'such', 'assignment', 'of', 'revenue', 'responsibility.', 'Alice', 'Rivlin', 'recently', 'suggested', 'a', 'different', 'approach,', 'a', 'system', 'of', '“common', 'shared', 'taxes', 'for', 'the', 'states"', '(Rivlin,', '1992,', 'p.', '152),', 'This', 'mechanism,', 'not', 'unlike', 'that', 'used', 'in', 'the', 'German', 'federal', 'system,', 'would', 'simplify', 'compliance', 'for', 'multistate', 'operations,', 'allow', 'tax', 'enforcement', 'economies,', 'reduce', 'state', 'concerns', 'about', 'competitive', 'reaction', 'when', 'rates', 'increase', '(assuming', 'rates', 'on', 'the', 'shared', 'base', 'move', 'in', 'unison),', 'and', 'would', 'provide', 'states', 'with', 'another', 'revenue', 'option,', 'usable', 'either', 'to', 'reduce', 'existing', 'taxes', 'or', 'to', 'increase', 'quality', 'or', 'quantity', 'of', 'state-local', 'services.', 'Depending', 'on', 'the', 'nature', 'of', 'the', 'scheme,', 'it', 'could', 'also', 'allow', 'fiscal', 'equalization', 'GESISTEPOZ']