by GEORGE W. MITCHELL, OSCAR F. LITTERER, AND EVSEY D. DOMAR*
Preceding papers have dealt with the role that government fiscal policy plays in the attainment of economic stability and the full utilization of human and capital resources. They have specified the contribution that can be made by the Federal Government and have delineated the problems involved in shaping Federal revenue and expenditure practices to such an end. It is apparent that the government elements of a national economic policy must in large measure be supplied by the National Government. Nonetheless State and local governments play an important role in the entire economy, and the fiscal policies of these governments if integrated with a Federal program can aid in securing the goal of full employment and economic stability.
In terms of the aggregate of expenditure during the period 1920-40, the local and State governments had a greater impact on the economy than had the Federal Government. In no year did their expenditures constitute less than 40 per cent of total government disbursement, as indicated by the chart on page 102, and in some years these units accounted for as much as 70 per cent of the total. through many of these years the expenditure practices of the State and local governments were directly counter to those of the Federal Government. This divergence, prevailing during a period characterized by extremes of prosperity and of depression, largely deprived the economy of the beneficial effects of a consistent and integrated government expenditure and revenue pattern.
It is the purpose of this paper to examine the characteristics of State and local finance with a view to ascertaining how and to what extent the State and local units can pursue fiscal policies of the type urged in earlier chapters. The obstacles to such a course of action are associated with____________________