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 13: Fiscal Federalism in Bosnia and Herzegovina: Subsidiarity and Solidarity in a Three-Nation State

William Fox and Christine Wallich

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


William Fox and Christine Wallich This chapter begins with a comprehensive summary of the environment in Bosnia and Herzegovina prior to the war and of the intergovernmental system that was developed as an outgrowth of the war and prewar experiences and an evaluation of the issues created by the intergovernmental structure. The chapter concludes with some actions that could be taken to enhance efficiency in the existing government structure and an assessment of whether the system, which is characterized by a high degree of subsidiarity, is leading to a greater potential for solidarity. HISTORICAL BACKGROUND AND THE DAYTON RULES This section addresses the overall environment that existed prior to the war and why it resulted in the unique government structure that was adopted in Bosnia and Herzegovina. The Yugoslav Legacy The legacy of Yugoslavia has had significant relevance for the design of Bosnia and Herzegovina’s intergovernmental fiscal system.1 Indeed, some would say that it is the spectre that still hangs over the design of such policies. Yugoslavia was always the most decentralized of the socialist economies, both in terms of its economic and fiscal management and of its political structures. The system was characterized by political solidarity (under Tito), but by subsidiarity at a structural level.2 Unlike in the rest of the socialist world, the Yugoslav republics had significant autonomy from the beginning, and their power was further increased by the 1963 constitution, which created the basis for the emergence of centrifugal forces. Tax reforms in 1971 gave greater revenue...

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