Abstract
The constitutional design and the institutional setting in fiscal and financial matters are of pivotal importance for the very existence of any federal system. From a constitutional perspective, they can be portrayed as the outcome of a balance between autonomy claims and solidarity concerns and show an inherent dynamic nature. On the one hand, the recognition of autonomy on the revenue side is one of the key aspects as far as fiscal decentralization is concerned and strongly affect the structure and the functioning of the system as a whole. While in some countries, territorial entities are financed mainly through central transfers and/or tax-revenue-sharing schemes, in others they rely highly on own-tax revenues. On the other hand, autonomy and differentiation are balanced with the equity and solidarity principles. Fiscal capacity tends to diverge widely under the impact of several factors like socio-economic development, the availability of resources, the demographic consistency, the population density and age, as well as topographic and structural aspects. Consequently, federal systems aim at reducing the existing disparities through equalization mechanisms. The goal is to ensure equal opportunities in all territorial autonomies, i.e. equality in the access to civil and social rights in the entire territory, independently from the place of residence, for the sake of the unity of the State.
Against this frame of reference, it emerges more and more the need to focus also on local finance as well as on subnational government relations with their local governments and on federal–local relations, which find explicit formalization in some cases, as in Spain and Austria, while in others, such as Canada and the United States, these dynamics are informal (Steytler 2009: 427–8). These aspects and relations remain mostly untouched in fiscal-federalism studies, although local finance is increasingly seen as a constituent element of ‘fiscal constitutions’.
Tremendous variations of models and experiences exist even within the same federal system and hinder the adoption of a systematic approach to the topic; nonetheless the interrelations of local governments with the federal system as a whole deserve major attention. Altogether, the issues ‘of a relevant level below’, and ‘how this interferes with federal dynamics’ should receive amplified comparative and interdisciplinary observation. Changing contexts demand new institutional solutions and original approaches to face emerging problems and trends, bringing about the need to revise once again the borders of fiscal federalism and rethink its significance because of increasing worldwide complexity (Tanzi 2008). ‘To ignore the completeness of decentralized systems’ (Martínez-Vázquez 2008: 28) is a mistake in some countries, and the research agenda on fiscal federalism has to face it to keep pace.