We revisit the role of consumption spillovers in evaluating the merits of decentralization. Read, highlight, and take notes, across web, tablet, and phone. Resource allocation and management as well as fiscal federalism decentralization have remained contentious issues in a federal state such as nigeria. The first is about political decision structures in fiscal federalism. The term was introduced by the germanborn american economist richard musgrave in 1959. Introduction over the past thirty years, a clear trend has emerged worldwide towards the. Foreword editing a handbook is an opportunity and at the same time a challenge for the editors. Resource allocation and management as well as fiscal federalismdecentralization have remained contentious issues in a federal state such as nigeria. Oates the traditional theory of public finance has made a strong case for a major role for fiscal decentralization.
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. 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. Fiscal federalism in europe lessons from the united states experience. A fiscal federalism approach to infrastructure policy. The concept of fiscal federalism is not to be associated with fiscal decentralization in officially declared federations only. While bringing out the differences between the two complimentary but different concepts of fiscal federalism and fiscal decentralisation. This article explores this effort to judicialize austerity in the european union, focusing on two interrelated sets of questions. Zax, examine the distribution of power and responsibilities among the various levels of government. In other words, it is the study of how competencies expenditure side and fiscal instruments revenue side are allocated across different vertical layers of. The recent scholarship has made distinction between two generations of literature in 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. 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. Revisiting the decentralization theorem on the role of. N background epal is in the midst of a major political, administrative and fiscal restructuring and reform. 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. 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. 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. 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. Unlike the general prediction, a higher degree of spillovers may reduce the difference in utility of centralization and decentralization. Rubinfeld unisity of california at berkeley, berkeley, ca, usa 1.
On the theory and practice of fiscal decentralization wallace e. A contrasting and competing view of the public sector was also. Oates is a professor of economics at the university of maryland and a university fellow with resources for the future. 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. This rethinking has led to a resurgence of interest in the principles and practices. The earliest formulations of the firstgeneration theory of fiscal federalism as in musgrave 1959. Pdf old and new theories of fiscal federalism, organizational. The new programs and policies were based on fiscal federalism. The vast majority of these celebrate the benefits of fiscal and political decentralization. The decentralization theorem oates, 1972 is central to the discussion of fiscal federalism. The distinction between fgff and sgff parallels that made by musgrave 1959,4. The division of functions among levels of government 3.
This article describes the theories of fiscal federalism and the history of the literature. The pattern of spending, taxing, and providing grants in the federal system. Fiscal federalism is concerned with whether activities like resource allocation, income distribution and stabilisation policies should be. Well, its a funny thing to define federalism because it is something that defines the constitutional system. Yet people disagree as to whether it is a practical policy or an underlying principle. Toward a secondgeneration theory of fiscal federalism. Assignment of responsibilities and fiscal federalism federalism and public sector performance. 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. Fiscal federalism, governance and internally generated revenue. Overview of fiscal federalism as covered during class. This book pays special attention to the argument that decentralized federalism can enhance the fiscal discipline of government. 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. 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.
This essay discusses the major issues and theories concerning federal. 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. Tax competition as a disciplining device butwelfare consequences of taxcompetitionis not trivial brennan and buchanan, 1980. 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. The first three papers, by john joseph wallis and wallace e. Pdf fiscal federalism, good governance, and economic. The fourth section concludes and suggests possible uses for the new fiscal federalism variable in future research. An empirical analysis of fiscal decentralization on public goods spending authors. As originally developed by musgrave 1959 and oates 1972, the theory of fiscal federalism con. The ppyrimary pppurpose of federalism is to create competition between jurisdictions.
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. There are many different theories of fiscal federalism, with some suggesting that greater allocation of funds should go to. Though the latter approaches the problem of fiscal federalism from different perspectives, it does not challenge but complements the former. Fiscal federalism, governance and internally generated. Second generation fiscal federalism stanford university. Wallace e oates monograph analysing concept of a fiscal federalism in which taxation and debt finance in a federal system is dealt with. With the exception of historians and biographers, hamiltons true convictions about fiscal federalism have largely been ignored. This paper presents a fiscal federalism perspective on infrastructure policy. At its most basic level, fiscal federalism attempts to define the division of governmental functions, and the financial relationship between, different levels of. 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. Fiscal federalism, financial relations between units of governments in a federal government system. On the theory and practice of fiscal decentralization.
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. 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. 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. 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. Introduction in democratic and totalitarian regimes alike, the existing political and legal. Inman unillernty of pennsylvania, philadelphio, pa. He has written widely on environmental affairs and is coauthor of the theory of environmental policy and author of the economics of environmental regulation. Module 1 the main pillars of the theory of fiscal federalism 1. Pdf fiscal federalism, good governance, and economic growth. Fiscal federalism is concerned with the optimal level of centralization or. 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. On the evolution of fiscal federalism national tax association.
Pdf on the theory and practice of fiscal decentralization. Project muse law, fiscal federalism, and austerity. 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. First, we attempt to state the rules and principles that make for an efficient conduct of. In a seminal article, weingast notes a fundamental political dilemma of. Its impact on political stability in nigeria article pdf available in african journal of business management 624. 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. Fiscal federalism principles, practices and challenges. Canada, germany, switzerland and the united states. A way of organizing a nation so that two levels of government have formal authority over the same land and people. Wallace oates was a distinguished university professor emeritus at the university of maryland and a university fellow at resources for the future.
Learn vocabulary, terms, and more with flashcards, games, and other study tools. Assignment of responsibilities expenditure and tax, concept of equalization, determinants of fiscal position, strategic interactions among constituent units, and. Fiscal federalism in the united states queens university. Fiscal federalism is part of broader public finance discipline. This case is based on an improved allocation of resources in the public sector. The study has critically analysed the first generation theory and second generation theory of fiscal federalism. Proceedings from the 2009 sho sato conference on tax law 2 why federalism matters. Devolution of taxes and duties still constitutes the most significant dimension of fiscal federalism in india krishna, 2004. Theories of public economy can be approached in two ways. John 2007, fiscal decentralization and economic growth reconsidered, 61 journal of urban economics, january, pp.
The wallis oates paper provides a broad historical perspective on the extent and evolution of fiscal decentralization in the state and local sector. 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. Fiscal federalism is a general normative framework for the assignment of functions to the different levels of. Assignment of responsibilities and fiscal federalism. Fiscal federalism means that federal funding is allocated to the states with specific conditions attached. His first book was fiscal federalism 1972 and he authored numerous other books and articles, including the theory of. 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. 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. 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. Journal of fiscal federalism stocktaking of fiscal decentralization policy in nepal, prof.
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