Examples Of Fiscal Federalism

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Federal systems have been in existence at least since the American Revolution and independence. The text drafted by the convention at Philadelphia in 1787 provides the first example of a modern federal constitution (see Madison et al. 1788). As is frequently the case with most theories, the literature on fiscal Introduction 3 federalism has been strongly influenced by the geo-political context in which it originated; namely, the federal systems of North America. This has led to problems relating to its extension to other cases, especially to the nation states of Europe and Asia. A simple example refers to the assignment problem. Fiscal federalism theory (see, for example, Musgrave 1961; Olson 1969) dictates that responsibilities should be assigned according to the equivalence principle, or that the jurisdiction responsible for a given public policy should coincide with the geographic coverage of the impact of these policies on households and the relevant electorate. This presupposes that sub national jurisdictions can be created, merged or modified at practically zero cost The past half-century or so has seen a significant pressure and move towards decentralization or federalization all over…show more content…
The requirement of competitiveness under a regime of economic liberalization thus made economic efficiency an imperative. Fiscal correction and consolidation however, requires reforming fiscal federalism, since the public finances of the center and states were inextricably linked. In these distinctive ways, the impact of economic liberalization stretched into the arena of fiscal federalism. Change in fiscal federalism is not altogether absent prior to economic liberalization, but such change is usually slow and gradual after liberalization it must be sustained and comprehensive through stretched over considerable

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