Fiscal federalism

About: Fiscal federalism is a research topic. Over the lifetime, 3646 publications have been published within this topic receiving 88420 citations.

An Optimal Taxation Approach to Fiscal Federalism

Abstract: In a Federal system of government, each unit of government decides independently how much of each type of public good to provide, and what types of taxes, and which tax rates, to use in funding the public goods. In this paper we explore what types of problems can arise from this decentralized form of decision-making. In particular, we describe systematically the types of externalities that one unit of government can create for nonresidents, through both its public goods decisions and its taxation decisions. The paper also explores briefly what the central government might do to lessen the costs of decentralized decision-making.

On the Measurement and Impact of Fiscal Decentralization

Abstract: The typical post-Bretton Woods era development approach that emphasized central government-led development efforts has changed dramatically, and local governments have clearly emerged as players in development policy. The thinking about what is important to achieve in development objectives is changing as fiscal decentralization reforms are being pursued by many countries around the world. In this context, a number of studies have attempted to quantify the impact of decentralization by relating some measure of it to economic outcomes of fiscal stability, economic growth, and public sector size. But decentralization is surprisingly difficult to measure. Nearly all cases examining the relationship between decentralization and macroeconomic performance have relied on the Government Finance Statistics (GFS) of the International Monetary Fund. However, despite its merits, GFS falls short in providing a full picture of fiscal decentralization. For some countries, however, there is data that more accurately captures fiscal responsibilities among different types of governments.

Reviving Leviathan: Fiscal Federalism and the Growth of Government

Abstract: This article revisits the influential "Leviathan" hypothesis , which pos- its that tax competition limits the growth of government spending in decentralized countries+ I use panel data to examine the effect of fiscal decentralization over time within countries, attempting to distinguish between decentralization that is funded by intergovernmental transfers and local taxation+ First, I explore the logic whereby decentralization should restrict government spending if state and local governments have wide-ranging authority to set the tax base and rate, especially on mobile assets+ In countries where this is most clearly the case, decentralization is associated with smaller government+ Second, consistent with theoretical arguments drawn from wel- fare economics and positive political economy, I show that governments grow faster as they fund a greater portion of public expenditures through intergovernmental transfers+

Tied to the mast? National fiscal rules in the European Union

Abstract: Numerical fiscal rules implemented at the national level in member countries of the European Union offer useful information on possible reasons for the growing reliance on such rules, and on their implication for fiscal policy. Our analysis of a survey-based dataset suggests that both the introduction of the EU fiscal framework and country-specific fiscal governance features played a role in triggering introduction of numerical fiscal rules, and that the impact of rules is statistically significant, robust, and quantitatively important. Outcomes and rules may be jointly determined by unobserved political factors, but the evidence suggests that causality runs from rules to fiscal behaviour, and that rules specifically designed to prevent conflicts with the stabilization function of fiscal policy are indeed associated with less pro-cyclical policies. — Xavier Debrun, Laurent Moulin, Alessandro Turrini, Joaquim Ayuso-i-Casals and Manmohan S. Kumar

Hamilton's Paradox: The Promise and Peril of Fiscal Federalism

Abstract: 1. Introduction and overview 2. Promise and peril: intellectual history 3. Sovereignty and commitment 4. The power of the purse: intergovernmental grants and fiscal discipline 5. Disease or cure? Political parties and fiscal discipline 6. An approach to comparative case studies 7. Fiscal federalism and bailouts in postwar Germany 8. The crisis of fiscal federalism in Brazil 9. The challenge of reform in federations 10. The origins of subnational sovereignty 11. Conclusions.