Encyclopedia of Law and Economics

2019 Edition
| Editors: Alain Marciano, Giovanni Battista Ramello

Fiscal Federalism

  • Philip C. HankeEmail author
  • Klaus Heine
Reference work entry
DOI: https://doi.org/10.1007/978-1-4614-7753-2_175


Fiscal federalism is concerned with the optimal level of centralization or decentralization of state activity. The early literature attributed the central government two functions: ensuring allocative and macroeconomic stability on the one hand and assistance of the poor (redistribution) on the other hand. A second generation of fiscal federalism went beyond the realm of public economics and added aspects of political economy and to the debate. In the context of European integration, these questions are of particular relevance, with migration and the sovereign debt crisis being two examples addressed in this entry.

This is a preview of subscription content, log in to check access.


  1. Cremer J, Estache A, Seabright P (1996) Decentralizing public services: what can we learn from the theory of the firm. Rev Econ Polit 106(1):37–60Google Scholar
  2. Frey BS, Eichenberger R (1999) The new democratic federalism for Europe: functional, overlapping, and competing jurisdictions. Edward Elgar Publishing, CheltenhamGoogle Scholar
  3. Heine K, Kerber W (2002) European corporate laws, regulatory competition and path dependence. Eur J Law Econ 13:47–71CrossRefGoogle Scholar
  4. Inman RP (2003) Transfers and bailouts: enforcing local fiscal discipline with lessons from U.S. federalism. In: Rodden JA, Eskeland GS, Litvack J (eds) Fiscal decentralization and the challenge of hard budget constraints. MIT Press, Cambridge, MA, pp 35–83Google Scholar
  5. Inman RP, Rubinfeld DL (1998) Subsidiarity and the European union. In: Newman P (ed) The new Palgrave dictionary of economics and the law. Macmillan, London, pp 545–551Google Scholar
  6. Kenyon DA (1997) Theories of interjurisdictional competition. N Engl Econ Rev 13–36Google Scholar
  7. Kenyon DA, Kincaid J (1991) Competition among states and local governments: efficiency and equity in American federalism. The Urban Institute, Washington, DCGoogle Scholar
  8. Kirchner C (1998) Competence catalogues and the principle of subsidiarity in a European constitution union. Constit Polit Econ 8:71–87CrossRefGoogle Scholar
  9. McLure C (ed) (1983) Tax assignment in federal countries. Australian National University, CanberraGoogle Scholar
  10. Musgrave RA (1959) The theory of public finance. McGraw-Hill, New YorkGoogle Scholar
  11. Oates WE (1972) Fiscal federalism. Harcourt Brace Jovanovich, New YorkGoogle Scholar
  12. Oates WE (1996) Taxation in a federal system: the tax-assignment problem. Public Econ Rev 1:35–60Google Scholar
  13. Oates WE (1999) An essay on fiscal federalism. J Econ Lit 37(3):1120–1149CrossRefGoogle Scholar
  14. Oates WE (2005) Toward a second-generation theory of fiscal federalism. Int Tax Public Financ 12(4):349–373CrossRefGoogle Scholar
  15. Oates WE, Schwab R (1988) Economic competition among jurisdictions: efficiency enhancing or distortion inducing? J Public Econ 35(April):333–354CrossRefGoogle Scholar
  16. Oates WE, Schwab R (1991) The allocative and distributive implications of local fiscal competition. In: Kenyon DA, Kincaid J (eds) Competition among states and local governments. The Urban Institute, Washington, DCGoogle Scholar
  17. Oates WE, Schwab R (1996) The theory of regulatory federalism: the case of environmental management. In: Oates WE (ed) The economics of environmental regulation. Edward Elgar Publishing, Aldershot, pp 319–331Google Scholar
  18. Olson M (1969) The principle of ‘fiscal equivalence’: the division of responsibilities among different levels of government. Am Econ Rev 59(2):479–487Google Scholar
  19. Qian Y, Weingast BR (1997) Federalism as a commitment to preserving market incentives. J Econ Perspect 11(4):83–92CrossRefGoogle Scholar
  20. Romano R (1993) The genius of American corporate law. AEI Press, Washington, DCGoogle Scholar
  21. Rose-Ackerman S (1980) Risk taking and reelection: does federalism promote innovation? J Leg Stud 9:593–616CrossRefGoogle Scholar
  22. Salmon P (1987) Decentralization as an incentive scheme. Oxf Rev Econ Policy 3(2):24–43CrossRefGoogle Scholar
  23. Seabright P (1996) Accountability and decentralization in government: an incomplete contracts model. Eur Econ Rev 40:61–89CrossRefGoogle Scholar
  24. Strumpf KS (2002) Does government decentralization increase policy innovation? J Public Econ Theory 4(2):207–241CrossRefGoogle Scholar
  25. Tiebout CM (1956) A pure theory of local expenditures. J Polit Econ 64(5):416–424CrossRefGoogle Scholar
  26. Tommasi M, Weinschelbaum F (2007) Centralization vs. decentralization: a principal-agent analysis. J Public Econ Theory 9(2):369–389.  https://doi.org/10.1111/j.1467-9779.2007.00311.xCrossRefGoogle Scholar
  27. Weingast BR (1995) The economic role of political institutions: market-preserving federalism and economic development. J Law Econ Org 11(1):1–28Google Scholar

Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  1. 1.Department of Public LawUniversity of BernBernSwitzerland
  2. 2.Rotterdam Institute of Law and EconomicsErasmus School of Law, Erasmus University RotterdamRotterdamThe Netherlands