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 and spending needs tend 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.
Sustainability or rather sustainable development is not just one of the goals of the future but also a goal of the present. The shared blueprint peace and prosperity for people and the planet exemplified by the UN’s Sustainable Development Goals cannot be achieved in isolation but with cooperative action. Achieving goals such as gender equality, no poverty or reduction of inequalities require a sufficient allocation of financial resources to subnational governments as the lack of these would render unworkable in practice. Thus, the allocation of fiscal resources in federal/multilevel systems becomes pivotal in order to implement policies that contribute to progress towards the realization of these objectives.
In addition, changing contexts demand new institutional solutions and original approaches to face emerging problems and challenges as it is the case of the demands for secession, bringing about the need to revise once again the borders of fiscal federalism and rethink its significance because of increasing worldwide complexity. Thus, maintaining the balance of powers between the center and the territorial entities would require an increased cooperation between the two orders of government to reduce tensions. This can be articulated through existing arrangements or fostering the development of new cooperation instruments to avoid that these issues end up being settled in Court with the political consequences that this could entail.