What does Fiscal Federalism refer to?

Fiscal Federalism refers to the system of federal grants funding state and local programs. This concept emphasizes the financial relationship between different levels of government, particularly how the federal government allocates resources to state and local governments to support various initiatives and programs.

The federal grants can take various forms, including categorical grants that are targeted for specific purposes, and block grants that offer more flexibility to the states in how they utilize the funds. This system aims to address regional needs, enhance public services, and help mitigate disparities between states and communities.

Understanding Fiscal Federalism is vital as it illustrates how intergovernmental financial interactions influence policy making and service delivery at the state and local levels, ensuring that essential services such as education, healthcare, and infrastructure are effectively funded and implemented.