Fiscal Federalism and Political Decentralization

Fiscal Federalism and Political Decentralization

Lessons from Spain, Germany and Canada

Studies in Fiscal Federalism and State–local Finance series

Edited by Núria Bosch and José M. Durán

This book analyzes political decentralization and fiscal federalism in Canada and Germany, both traditional federal countries, and in Spain, a unitarian country engaged in the last two decades in a process of decentralization. Three key issues required for a well designed financing system are analyzed in depth, namely: tax assignment, equalization grants – i.e. redistribution of money from the wealthy regions or the national government to poorer regions, and the role of local governments in the administration of taxes.

Preface

Edited by Núria Bosch and José M. Durán

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

Extract

Núria Bosch and José M. Durán Traditionally, countries have been divided into unitary and federal countries, depending on the political system of organization. The former consist of two levels of governments, central and local, while the latter have another tier of government in between, a regional one. However, an increasing number of historically unitary countries are carrying out reforms with the aim of moving toward more decentralized governance. They are not pure federal countries, but at the same time they are not purely unitary any more, since the regional governments, often set up with decentralized purposes, take on a significant number of responsibilities previously undertaken by the central government. A key issue in the process of good political decentralization is to find an appropriate financing system for regional governments. Regions must have adequate revenues to fund their public expenditure requirements so that they enjoy effective autonomy, but at the same time they must also take responsibility for how they raise those revenues. Therefore, the objectives are to achieve autonomy but also fiscal responsibility. But in addition, central governments must ensure that all their citizens, regardless of whether they live in a rich or a poor region, enjoy similar levels of wellbeing. Poor regions must also raise enough revenues to fund their responsibilities and achieve national standards. In other words, autonomy and fiscal responsibility must be combined with territorial solidarity. This book analyzes political decentralization and fiscal federalism, focusing precisely on the financing system of regions, and...