Handbook of Multilevel Finance
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Handbook of Multilevel Finance

Edited by Ehtisham Ahmad and Giorgio Brosio

This Handbook explores and explains new developments in the “second generation” theory of public finance, in which benevolent rulers and governments have been replaced by personally motivated politicians and the associated institutions. Following a comprehensive introduction by the editors, the renowned contributors present fresh and original perspectives on the key multi-level issues, along with recent developments in theory and practice, as they relate to taxes, budget systems, the management of liabilities and macroeconomic stability. The book also explores special issues concerning the poor and marginalized, structural change and the environment, natural disasters, and the task of overcoming conflicts whilst keeping countries together.
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Chapter 8: The assignment of functions to decentralized government: from theory to practice

Bernard Dafflon


Over the past two decades, the assignment of public responsibilities and functions to the different levels of government has emerged as a key question not only in federal, but also in many unitary countries, including some that have a long tradition of centralist government. The resurgence of the federal idea and the need for decentralization basically has many different causes. Political development in post-communist countries and in the Balkans, recent discussions in the European Union, and new trends in Latin America, Asia and Africa show that this tendency is worldwide. The debate on fiscal federalism and decentralization demonstrates clearly that there is no ‘one’ correct economic model. Empirical evidence also suggests that there is a great variety of expenditure assignments among different countries reflecting varying social preferences. Facts and ideas depart from the canon of fiscal federalism. Hence the subject of this chapter originates in the discrepancies which have been experienced in many European countries between the economic literature concerned with the optimal size and responsibilities of decentralized governments and practices in the (re) assignment of functions to regional and local authorities as a result of political and institutional processes. It is not surprising that academic arguments have not informed the political debate when one considers that the traditional economic theory in this field is prescriptive. It assigns allocative expenditure activities to lower government layers on the principle of territorial benefit, whereas distributional and stabilization (macroeconomic) functions require central responsibility.

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