Fiscal federalism in the european union to what extent should local and regional governments in the european union be allowed to determine their own fiscal policies. Tax competition as a disciplining device butwelfare consequences of taxcompetitionis not trivial brennan and buchanan, 1980. There are many different theories of fiscal federalism, with some suggesting that greater allocation of funds should go to decentralized governments, while others suggest that a strong central government is more important. Project muse law, fiscal federalism, and austerity. Introduction over the past thirty years, a clear trend has emerged worldwide towards the. The 2012 fiscal compact treaty, one of the lynchpins of this package of reforms, requires states to incorporate judicially enforceable balancedbudget rules into national law. Fiscal federalism constitutes the core and difficult area of federalism which measures the degree of division of powers among the constituent units of federations for the financial power is an engine of every activity. The term was introduced by the germanborn american economist richard musgrave in 1959. Wallace oates was a distinguished university professor emeritus at the university of maryland and a university fellow at resources for the future. Second generation fiscal federalism stanford university. Examining weak subnational finances in nigerian states chukwuma agu african institute for applied economics,enugu, nigeria abstract one of the most crucial challenges to nigerias ailing fiscal federalism is the inability of states to raise, retain and manage revenue.
Journal of fiscal federalism stocktaking of fiscal decentralization policy in nepal, prof. Fiscal federalism is an area of study in public economics that focuses on the allocation of fiscal rights and responsibilities across different levels of government. The vast majority of these celebrate the benefits of fiscal and political decentralization. A contrasting and competing view of the public sector was also. The earliest formulations of the firstgeneration theory of fiscal federalism as in musgrave 1959. Oates is a professor of economics at the university of maryland and a university fellow with resources for the future. On the evolution of fiscal federalism national tax association. The concept of fiscal federalism is not to be associated with fiscal decentralization in officially declared federations only. John 2007, fiscal decentralization and economic growth reconsidered, 61 journal of urban economics, january, pp. Fiscal federalism means that federal funding is allocated to the states with specific conditions attached. Read, highlight, and take notes, across web, tablet, and phone. In other words, it is the study of how competencies expenditure side and fiscal instruments revenue side are allocated across different vertical layers of. This case is based on an improved allocation of resources in the public sector.
His first book was fiscal federalism 1972 and he authored numerous other books and articles, including the theory of. This postgraduate course covers some of the main topics in fiscal federalism, broadly defined as the research area dealing with public economics issues arising in settings where different layers of government coexist i. Rubinfeld unisity of california at berkeley, berkeley, ca, usa 1. Fiscal federalism shifting sands in division of fiscal powers globalization and information revolution and their discontents towards an hour glass model of federalism new vision of local governance widening economic and fiscal divide within nations fiscal prudence and fiscal discipline under fend for yourself federalism. Pdf fiscal federalism, good governance, and economic. The division of functions among levels of government 3. Fiscal federalism constitutes the core and difficult area of federalism which measures the degree of division of powers among the constituent units of federations for. This rethinking has led to a resurgence of interest in the principles and practices. Bird university of toronto the analysis of the problems that give rise to, and arise from, the existence of more than one level of government within the same geographical area. Oates the traditional theory of public finance has made a strong case for a major role for fiscal decentralization. We revisit the role of consumption spillovers in evaluating the merits of decentralization.
Wallace e oates monograph analysing concept of a fiscal federalism in which taxation and debt finance in a federal system is dealt with. Canada, germany, switzerland and the united states. Second generation fiscal federalism 3 1 also in this approach is the work of congleton, kyriacou, and bacaria 2003, cremer and palfrey 2002, iaryczower, saiegh, and to mmasi 2000, jones, sanguinetti, and tomasi 1999, kenny and winer 2006. This essay discusses the major issues and theories concerning federal. Inman unillernty of pennsylvania, philadelphio, pa. Though the latter approaches the problem of fiscal federalism from different perspectives, it does not challenge but complements the former. It begins by looking at the theory of fiscal federalism and then turns to the actual division of the responsibility for providing public capital in the united states. In a seminal article, weingast notes a fundamental political dilemma of. At its origin the federation was composed of states.
While bringing out the differences between the two complimentary but different concepts of fiscal federalism and fiscal decentralisation. Fiscal federalism is a general normative framework for the assignment of functions to the different levels of. Pdf fiscal federalism, good governance, and economic growth. Oates march 21, 1937 october 30, 2015 was a distinguished university professor of economics at the university of maryland he taught in the fields of public economics and environmental economics, and was considered a major international figure in both fields. The study has critically analysed the first generation theory and second generation theory of fiscal federalism. On the theory and practice of fiscal decentralization. A read is counted each time someone views a publication summary such as the title, abstract, and list of authors, clicks on a figure, or views or downloads the fulltext. N background epal is in the midst of a major political, administrative and fiscal restructuring and reform. A way of organizing a nation so that two levels of government have formal authority over the same land and people. Resource allocation and management as well as fiscal federalism decentralization have remained contentious issues in a federal state such as nigeria. Learn vocabulary, terms, and more with flashcards, games, and other study tools.
This paper draws on lessons from fiscal federalism theory and experiences of governance institutions and financing systems around the world to identify some key reforms needed both to ensure more. The constitutional and political context the united states of america became the first modern federation in 1789 following the failure of the previous confederal form of government established in 1781. Theories of public economy can be approached in two ways. Zax, examine the distribution of power and responsibilities among the various levels of government. Fiscal federalism is concerned with understanding which functions and instruments are best centralized and which are best placed in the sphere of decentralized levels of government oates, s. Fiscal federalism in the united states queens university. This article describes the theories of fiscal federalism and the history of the literature. As originally developed by musgrave 1959 and oates 1972, the theory of fiscal federalism con. Fiscal federalism, financial relations between units of governments in a federal government system. Fiscal federalism is concerned with whether activities like resource allocation, income distribution and stabilisation policies should be.
Toward a secondgeneration theory of fiscal federalism. Nov 27, 2015 the recent scholarship has made distinction between two generations of literature in fiscal federalism. Fiscal federalism in four federal countries abstract this paper provides a characterization of the fiscal policy framework in four established federal countries with heterogeneous intergovernmental relations and demographic characteristics. Goodspeed abstract as the world becomes more globalized and resources become more internationally mobile, the issue of tax competition is moving to the forefront of debates surrounding national tax systems. The fourth section concludes and suggests possible uses for the new fiscal federalism variable in future research. The pattern of spending, taxing, and providing grants in the federal system. Resource allocation and management as well as fiscal federalismdecentralization have remained contentious issues in a federal state such as nigeria. Yet people disagree as to whether it is a practical policy or an underlying principle. Assignment of responsibilities and fiscal federalism.
Fiscal federalism is concerned with the optimal level of centralization or. On the theory and practice of fiscal decentralization wallace e. There are many different theories of fiscal federalism, with some suggesting that greater allocation of funds should go to. A fiscal federalism approach to infrastructure policy. Pdf old and new theories of fiscal federalism, organizational.
As originally developed by musgrave 1959 and oates 1972, the theory of fiscal federalism concerns the division of publicsector functions and finances in a logical way among multiple layers of government king 1984. Pdf on the theory and practice of fiscal decentralization. Assignment of responsibilities expenditure and tax, concept of equalization, determinants of fiscal position, strategic interactions among constituent units, and. This paper presents a fiscal federalism perspective on infrastructure policy. This article explores this effort to judicialize austerity in the european union, focusing on two interrelated sets of questions. It requires a reconsideration of the entire field with the aim of selecting the main areas that have to be covered and of searching for recent and.
Its impact on political stability in nigeria article pdf available in african journal of business management 624. The wallis oates paper provides a broad historical perspective on the extent and evolution of fiscal decentralization in the state and local sector. Introduction both in the industrialised and developing world, moves are afoot for the decentralisation of government in the hope of improving the performance of the public sector. Module 1 the main pillars of the theory of fiscal federalism 1. Foreword editing a handbook is an opportunity and at the same time a challenge for the editors. At its most basic level, fiscal federalism attempts to define the division of governmental functions, and the financial relationship between, different levels of. An empirical analysis of fiscal decentralization on public goods spending authors. The first three papers, by john joseph wallis and wallace e.
This book pays special attention to the argument that decentralized federalism can enhance the fiscal discipline of government. This reprinted edition includes a new preface that briefly describes the origins of the book and comments on the evolution of the theory and practice of fiscal federalism since its publication. The new programs and policies were based on fiscal federalism. Principles of fiscal federalism anwar shah a large and growing number of countries are reexamining the roles of various orders of government and their partnerships with the private sector and civil society in order to improve their ability to serve their people more effectively and efficiently. It is moving towards building a federal government structure. Apr 07, 2020 fiscal federalism is an area of study in public economics that focuses on the allocation of fiscal rights and responsibilities across different levels of government. Well, its a funny thing to define federalism because it is something that defines the constitutional system. Fiscal federalism in europe lessons from the united states experience. He has written widely on environmental affairs and is coauthor of the theory of environmental policy and author of the economics of environmental regulation. Fiscal federalism, governance and internally generated revenue. Fiscal federalism, governance and internally generated. Revisiting the decentralization theorem on the role of.
Assignment of responsibilities and fiscal federalism federalism and public sector performance. Fiscal federalism principles, practices and challenges. Introducing some basic assumptions concerning the behavior of public agents and specifying more carefully the system of political institutions, this second strand of new theory offers an enriched view of on the evolution of fiscal federalism. As a subfield of public economics, fiscal federalism is concerned with understanding which functions and instruments are best centralized and which are best placed in the sphere of decentralized levels of government oates, 1999. With the exception of historians and biographers, hamiltons true convictions about fiscal federalism have largely been ignored. Devolution of taxes and duties still constitutes the most significant dimension of fiscal federalism in india krishna, 2004. The recent scholarship has made distinction between two generations of literature in fiscal federalism. Introduction in democratic and totalitarian regimes alike, the existing political and legal. Fiscal federalism is part of broader public finance discipline. The first is about political decision structures in fiscal federalism. The decentralization theorem oates, 1972 is central to the discussion of fiscal federalism.
Fiscal federalism is the analysis of the problems that give rise to, and arise from, the existence of more than one level of government within the same geographical area. Ribstein january 6, 2006 abstract this is the introductory essay for the economics of federalism, a book edited by the authors and forthcoming in edward elgar publishings economic approaches to law series. Robert inman the wharton school boadway and shah have provided the new definitive treatment of the principles of fiscal federalism against a rich background of the actual practice of fiscal decentralization in both industrialized and developing countries. First, we attempt to state the rules and principles that make for an efficient conduct of. Proceedings from the 2009 sho sato conference on tax law 2 why federalism matters. Overview of fiscal federalism as covered during class.
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