Institutions ofFederal States

Thursday:Fleiner:

Fiscal Decentralization

Master course Compound System of GovernanceThomas Fleiner

Income and Expenditures

Income

Taxes

Services

Funds

Loan

Expenditures

Mandates

Investments

Grants

Debts

Bu

dg

et

Leg

isla

tion

Transfer

State

FiscalFederalism

Fed

State

Local

Decentralized

No autonomyIncomeExpenditures

No autonomyIncomeExpenditures

Autonomy Income

Autonomy Income

VerticalEqualization

HorizontalVerticalEqualizat.

HorizontalEqualiz.

Centralized

Decision onmost Taxes

BudgetBudget contr.

Decision onFed. Taxes

Fed. Budget

Autonomy Budget

Autonomy Budget

Fiscal Equalization

Federal

StateStateStateState

Grants

Vertic

al

Horizontal

General Issueswith regard

toFiscal Federalism

Strong decentralized states (Quasi Federal):Spain and South AfricaRich and Small versus Big an poor

Centralized decentralized federationsAsymmetric Federations

Cooperative Federalism

Local Government

Australia

Brazil

Canada

German

IndiaMalays

Nigeria

Russia

Spain

South Af

CH USA

PopMilli

20 184 32 82 1090 24 924 144 40 47 8 296

Aerea000 km2

7687 8512 9985 357 3288 330 924 17075 505 1223 41 9631

Cdpcapit

32 4 35 33 0.7 5 0.5 4 24 5 37 42

Fisc Fede dual

Coop.indep.

dualCoopInterdep.

dualDualassymetr

CoopInterdep.

dualDualassymetr

CoopInterdep.

dual dual

LocalGovt.Cst.

no yes no no yes no yes no no yes yes no

StatecontrLoc.

strong

weak

strong

strong

strong

strong

strong

strong

strong

strong

strong

varies

Range locGvt.

limited

extensiv

extensiv

limited

limited

limited

limited

limited

limited

limited

extensiv

extensiv

Equalization

strong revexpe

fair

StrongRevenDisp.reduc

Strong reve.s.exp

fair fair fair fair fair fair fairweak

FinancingFederal Mandates

Traditionally: Fiscal powers for : Peace, Order and Good GovernanceExpansion: due to war and judicial Interpretation Australia, USAThreats of Secession: Russia, India

Combating terrorism racial equality: USA, mioritiesNatural resource-management, environmental Pro-tection: Brazil Nigeria, USADebt management fiscal discipline Brazil

Common economy and welfare

In General: unfunded or underfunded mandates

TaxingPowers

Highly Centralized (75% or more): Malaysia, South Africa, Australia

Centralized (60-75%): Brazil, India Russia, USA

Highly decentralized: (only 37%): Switzerland

Decentralized: (40 to 50%): Canada, Nigeria

Taxing competence:wide powers: Switzerland, Canada, USA,

Nigeriarestrained: South Africa, Spain, Malaysia

AustraliaExpenditure competence:

high: Malaysia, Switzerland, Germany, Canada, USA

low: India, Spain exept.aut.regions

Harmonization

Tax system is harmonized in:Switzerland, Australia, CanadaGermany, Malaysia RussiaSpain

Not harmonized in: USA, Brazil, India

Borrowing: all federal States exceptNigeria, requires governmentalapproval (Germany?)

No race to the bottom, but also in some statescompetition

IntergovernmentalFiscal

TransferReduction of

Regional FiscalDisparities

Three objectives:

Bridging vertical fiscal gaps

Bridging fiscal divide between nations

securing a common economic union through establishing national minimumstandards in social and infrastructure services.

Conclusion

Clarity and Consensus for responsibilitiesFinance should follow function to strengthenResponsibilitiesTo ensure fiscal discipline all governments mustBe made to face the fiscal consequences of theirdecisions

Securing a common economic union through unimpe-ded goods and factor mobility and national minimum standards for social services and infrastructure is the best guarantee for political and economic stabilityand regional convergence in the long run.Properly designed intergovernmental transfers can strengthen results based accountability and also enhan-ce competition for the supply of public goods, fiscal harmonization, state and local government accounta-bility, and regional equity. Institutional arrangements for managing intergovern-mental conflicts play an important role in the smooth working of a federal system.