Master course Compound System of Governance
Thomas Fleiner
Institutions of
Federal States
Thursday:
Fleiner:
Fiscal Decentralization
Income and
Expenditures
Expenditures
Income
Mandates
Funds
Loan
Transfer
Legislation
Services
State
Budget
Taxes
Investments
Grants
Debts
Centralized
Fed
State
Local
Fiscal
Federalism
Decision on
most Taxes
Budget
Budget contr.
Decentralized
Decision on
Fed. Taxes
Vertical
Equalization
Fed. Budget
No autonomy Horizontal Autonomy Income
Income
Vertical
Expenditures Equalizat. Autonomy Budget
No autonomy
Income
Expenditures
Horizontal
Autonomy Income
Equaliz.
Autonomy Budget
Fiscal
Equalization
State
State
State
Horizontal
Vertical
Federal
State
General Issues
with regard
to
Fiscal Federalism
Strong decentralized states (Quasi Federal):
Spain and South Africa
Rich and Small versus Big an poor
Centralized decentralized federations
Asymmetric Federations
Cooperative Federalism
Local Government
Aus
trali
a
Braz
il
Can
ada
Ger
ma
n
Indi
a
Mal
ays
Nige
ria
Rus
sia
Pop
Milli
20
184
32
82
1090
24
924
144
40
Aerea
000
km2
7687
8512
9985
357
3288
330
924
17075
Cdp
capit
32
4
35
33
0.7
5
0.5
Fisc
Fede
dual
Coop.
indep.
dual
Coop
Inter
dep.
dual
Dual
assy
metr
Local
Govt.
Cst.
no
yes
no
no
yes
State
contr
Loc.
stro
ng
wea
k
stro
ng
stro
ng
stro
ng
Rang
e loc
Gvt.
limit exte
ed
nsiv
exte
nsiv
limi
ted
limit limit limit limit limit limit exte exte
ed
ed
ed
ed
ed
ed
nsiv nsiv
Equal
izatio
n
stron
Strong
Reven
Disp.
reduc
Stron
g
reve.
s.exp
g rev
expe
fair
fair
Spai Sout
n
h Af
CH
USA
47
8
296
505
1223
41
9631
4
24
5
37
42
Coop
Interd
ep.
dual
Dual
assy
metr
Coop
Interd
ep.
dual
dual
no
yes
no
no
yes
yes
no
stro
ng
stro
ng
stro
ng
stro
ng
stro
ng
stro
ng
vari
es
fair
fair
fair
fair
fair
fair
wea
k
Financing
Federal Mandates
Traditionally: Fiscal powers for : Peace, Order and
Good Governance
Expansion: due to war and judicial
Interpretation Australia, USA
Threats of Secession: Russia, India
Combating terrorism racial equality: USA, miorities
Natural resource-management, environmental Protection: Brazil Nigeria, USA
Debt management fiscal discipline Brazil
Common economy and welfare
In General: unfunded or underfunded mandates
Taxing
Powers
Highly Centralized (75% or more): Malaysia,
South Africa, Australia
Centralized (60-75%): Brazil, India Russia, USA
Decentralized: (40 to 50%): Canada, Nigeria
Highly decentralized: (only 37%): Switzerland
Taxing competence:
wide powers:
Switzerland, Canada, USA,
Nigeria
restrained:
South Africa, Spain, Malaysia
Australia
Expenditure competence:
high:
Malaysia, Switzerland,
Germany, Canada, USA
low:
India, Spain exept.aut.regions
Harmonization
Tax system is harmonized in:
Switzerland, Australia, Canada
Germany, Malaysia Russia
Spain
Not harmonized in:
USA, Brazil, India
Borrowing:
all federal States except
Nigeria, requires governmental
approval (Germany?)
No race to the bottom, but also in some states
competition
Intergovernmental
Fiscal
Transfer
Reduction of
Regional Fiscal
Disparities
Three objectives:
Bridging vertical fiscal gaps
Bridging fiscal divide between nations
securing a common economic union
through establishing national minimum
standards in social and infrastructure
services.
Conclusion
Clarity and Consensus for responsibilities
Finance should follow function to strengthen
Responsibilities
To ensure fiscal discipline all governments must
Be made to face the fiscal consequences of their
decisions
Securing a common economic union through unimpeded goods and factor mobility and national minimum
standards for social services and infrastructure is the
best guarantee for political and economic stability
and regional convergence in the long run.
Properly designed intergovernmental transfers can
strengthen results based accountability and also enha
ce competition for the supply of public goods, fiscal
harmonization, state and local government accountability, and regional equity.
Institutional arrangements for managing intergovernmental conflicts play an important role in the smooth
working of a federal system.