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 10: Asymmetric Federalism in India

M. Govinda Rao and Nirvikar Singh

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


M. Govinda Rao and Nirvikar Singh A variety of motivations can account for various national units coming together to form a federation. Political and economic theories of federalism attempt to understand the rationale behind the formation of federations and, once they are formed, analyse the conditions under which they hold together. Issues of freedom, security, political stability and strength, while keeping a separate group identity that might be lost in a unitary system, account for the political impulse behind smaller units’ desire to federate. Similarly, some of the economic reasons for smaller units coming together to form a federation are the resulting access to a larger common market, which allows reaping economies of scale in the provision of nation-level public goods, and the availability of wider choice of bundles of services to meet diverse preferences. In a situation of free association, each federating unit would try to bargain for terms advantageous to it when joining the federation, while an existing federation would try to attract entry and control exit. Given the unequal nature of interests and powers, symmetry in intergovernmental relationships may not be possible. Asymmetric federalism is understood to mean federalism based on unequal powers and relationships in political, administrative and fiscal arrangements between the units constituting a federation. Asymmetry in the arrangements in a federation can be viewed in both a vertical sense (between the centre and the states that make up the federation) and a horizontal sense (among the states).1 If federations are seen as an...

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