Master course Compound System of Governance Thomas Fleiner Institutions of Federal States Thursday: Fleiner: Fiscal Decentralization Income and Expenditures Income Expenditures Mandates Taxes Legislation Investments Budget Services State Funds Grants Loan Debts Transfer Fiscal Centralized Federalism Decentralized Decision on Decision on most Taxes Fed. Taxes Fed Budget Vertical Fed. Budget Budget contr. Equalization No autonomy Horizontal Autonomy Income State Income Vertical Expenditures Equalizat. Autonomy Budget No autonomy Horizontal Autonomy Income Local Income Equaliz. Expenditures Autonomy Budget Fiscal Equalization Federal Vertical State State State State Horizontal General Issues with regard to Fiscal Federalism Strong decentralized states (Quasi Federal): Spain and South Africa Rich and Small versus Big an poor Centralized decentralized federations Asymmetric Federations Cooperative Federalism Local Government Aus Ger Braz Can Indi Mal Nige Rus Spai Sout trali ma CH USA il ada a ays ria sia n h Af a n Pop 20 184 32 82 1090 24 924 144 40 47 8 296 Milli Aerea 000 7687 8512 9985 357 3288 330 924 17075 505 1223 41 9631 km2 Cdp capit 32 4 35 33 0.7 5 0.5 4 24 5 37 42 Coop Dual Coop Dual Coop Fisc Coop. Fede dual indep. dual Inter dual assy Interd dual assy Interd dual dual dep. metr ep. metr ep. Local Govt. no yes no no yes no yes no no yes yes no Cst. State stro wea stro stro stro stro stro stro stro stro stro vari contr Loc. ng k ng ng ng ng ng ng ng ng ng es Rang e loc limit exte exte limi limit limit limit limit limit limit exte exte Gvt. ed nsiv nsiv ted ed ed ed ed ed ed nsiv nsiv Strong Stron Equal stron Reven g wea izatio g rev fair reve. fair fair fair fair fair fair fair n Disp. k expe reduc s.exp Financing Federal Mandates Traditionally: Fiscal powers for : Peace, Order and Good Governance Expansion: due to war and judicial Interpretation Australia, USA Threats of Secession: Russia, India Combating terrorism racial equality: USA, miorities Natural resource-management, environmental Pro- tection: Brazil Nigeria, USA Debt management fiscal discipline Brazil Common economy and welfare In General: unfunded or underfunded mandates Taxing Powers Highly Centralized (75% or more): Malaysia, South Africa, Australia Centralized (60-75%): Brazil, India Russia, USA Decentralized: (40 to 50%): Canada, Nigeria Highly decentralized: (only 37%): Switzerland Taxing competence: wide powers: Switzerland, Canada, USA, Nigeria restrained: South Africa, Spain, Malaysia Australia Expenditure competence: high: Malaysia, Switzerland, Germany, Canada, USA low: India, Spain exept.aut.regions Harmonization Tax system is harmonized in: Switzerland, Australia, Canada Germany, Malaysia Russia Spain Not harmonized in: USA, Brazil, India Borrowing: all federal States except Nigeria, requires governmental approval (Germany?) No race to the bottom, but also in some states competition Intergovernmental Fiscal Transfer Reduction of Regional Fiscal Disparities Three objectives: Bridging vertical fiscal gaps Bridging fiscal divide between nations securing a common economic union through establishing national minimum standards in social and infrastructure services. Conclusion Clarity and Consensus for responsibilities Finance should follow function to strengthen Responsibilities To ensure fiscal discipline all governments must Be made to face the fiscal consequences of their decisions Securing a common economic union through unimpe- ded goods and factor mobility and national minimum standards for social services and infrastructure is the best guarantee for political and economic stability and regional convergence in the long run. Properly designed intergovernmental transfers can strengthen results based accountability and also enha ce competition for the supply of public goods, fiscal harmonization, state and local government accounta- bility, and regional equity. Institutional arrangements for managing intergovern- mental conflicts play an important role in the smooth working of a federal system.
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