Intergovernmental Aid To Reduce Fiscal Disparities: Problems of Definition and Measurement

This article examines the problem of structuring intergovernmental aid to correct for fiscal disparities. In general, distributing aid to equalize average tax effort will not eliminate underlying fiscal disparities. To do so requires that aid be distributed so as to equalize the local tax rate necessary to finance a base level of public services. Reviewed briefly are the potential consequences of these two approaches for horizontal equity and tax base mobility. Using data for Arizona school districts, the two approaches are shown to have widely disparate implications for the distribution of state school aid.