State Finance in the Great Depression

Source: Ronald Snell, National Conference of State Legislatures, March 2009

The Great Depression of the 1930s forced significant change in the domestic role of the federal, state and local governments in the United States primarily because the Roosevelt administration adopted responsibility for stimulating the economy and addressing the crisis of unemployment in 1933. The lack of a federal structure to administer domestic policy and the need to act quickly meant that state and local governments became tools of the federal government. Before the Depression, state and local governments had a very narrow revenue base in the property tax, whose inadequacy in changed circumstances was apparent by the time the federal government offered matching grants for public relief to the states. The result was the adoption of new kinds of state taxes as well as the expansion of the activities of state government. Although by current standards the expansion brought only moderate growth in the role of government, it laid the foundations of modern federalism and the domestic role of state and local government.

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