ABSTRACT
This chapter provides precise definitions of fiscal disparities and shows how they can be measured, presents evidence about the extent of fiscal disparities. It explores in detail why policymakers might want to offset fiscal disparities, and presents alternative policy instruments to that end. Public service costs and hence expenditure need depend both on input prices and on the harshness of the environment for providing public services. Revenue-side disparities are measured with the concept of revenue-raising capacity, which is the amount of money a jurisdiction could raise if it imposed a standard tax burden on its residents. Deficits are certainly a legitimate concern of public officials, but they reveal nothing about fiscal health as the term is used here. The chapter describes several studies of fiscal disparities in education, and discusses the rationale for state involvement in the education finance system. It explores the possible objectives of state policy, and evaluates alternative methods for state assistance to school districts.
