Fiscal Fragmentation in Decentralized Countries

Fiscal Fragmentation in Decentralized Countries

Subsidiarity, Solidarity and Asymmetry

Edited by Richard M. Bird and Robert D. Ebel

Most countries, developed and developing, are fiscally decentralized with regional and local governments of varying importance. In many of these countries, some of these sub-national governments differ substantially from others in terms of wealth, ethnic, religious, or linguistic composition. This book considers how fiscal arrangements may strengthen or weaken national solidarity and the effectiveness with which public services are provided. In particular, the nation’s ability to cope with changes created by decentralization is explored.

Chapter 7: Fiscal Decentralization in Spain: An Asymmetric Transition to Democracy

Teresa Garcia-Milà and Therese J. McGuire

Subjects: economics and finance, political economy, public sector economics, politics and public policy, political economy


Teresa Garcia-Milà and Therese J. McGuire Asymmetric fiscal decentralization, that is, different fiscal arrangements between the central government and different groups of or individual lowerlevel governments, may be justified from an economic efficiency perspective. As Oates (1972), Tiebout (1956), and others argue, a decentralized system of regional and local governments is better able to accommodate differences in tastes for public goods and services. This efficiency argument calls for decentralization of fiscal authority to regional and local governments, but not necessarily asymmetric decentralization. However, when the differences in tastes for public goods and services arise out of differences in history, culture and language across regions of a country, asymmetric treatment may be justified. History, culture and language may influence how a group of people (a region) views autonomy, independence and fiscal authority. Some regions may have had experience with autonomous government in the past. They may have a culture that is strongly reliant upon or wary of the central government or they may be fearful of losing their separate languages if they do not have special arrangements. To accommodate differences in taste for independence, autonomy and fiscal authority, having different fiscal arrangements between the central government and the different regions comprising the country may be necessary (see Petchey, Shapiro and Walsh 1997 for a discussion of differences across subnational governments in values and in preferences for political structures). Another efficiency argument for asymmetric decentralization centres on differences among regions in their capacities for public administration. Efficient provision of public goods and...

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