Handbook of Fiscal Federalism
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Handbook of Fiscal Federalism

Edited by Ehtisham Ahmad and Giorgio Brosio

This major Handbook addresses fiscal relations between different levels of government under the general rubric of ‘fiscal federalism’, providing a review of the latest literature as well as an invaluable guide for practitioners and policy makers seeking informed policy options. The contributors include leading lights in the field, many of whom have themselves made seminal contributions to the literature.
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Chapter 11: The Assignment of Functions to Decentralized Government: From Theory to Practice

Bernard Dafflon


Bernard Dafflon Introduction Over the past ten years, 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.1 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. It treats allocative efficiency as being concerned...

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