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Institutions of Federal States

Master course Compound System of Governance Thomas Fleiner. Institutions of Federal States. Thursday: Fleiner: Fiscal Decentralization. Income and Expenditures. Expenditures. Income. Mandates. Taxes. Investments. State. Services. Budget. Legislation. Grants. Funds. Debts.

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Institutions of Federal States

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  1. Master course Compound System of Governance Thomas Fleiner Institutions of Federal States Thursday: Fleiner: Fiscal Decentralization

  2. Income and Expenditures Expenditures Income Mandates Taxes Investments State Services Budget Legislation Grants Funds Debts Loan Transfer

  3. Fiscal Federalism Centralized Decentralized Decision on Fed. Taxes Decision on most Taxes Fed Vertical Equalization Budget Budget contr. Fed. Budget No autonomy Income Expenditures Horizontal Vertical Equalizat. Autonomy Income State Autonomy Budget Horizontal Equaliz. No autonomy Income Expenditures Autonomy Income Local Autonomy Budget

  4. Fiscal Equalization Federal Vertical Grants State State State State Horizontal

  5. 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

  6. 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

  7. 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

  8. 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

  9. 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.

  10. 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 enhan- 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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