Focus on fiscal federalism

• Author: Ina Kota
• Position: IMF External Relations Department
• Pages: 356

Page 356

Until the early 1990s, fiscal federalism-fiscal relations between different levels of government-was a largely unexplored area of fiscal policy. But over the past decade a trend toward decentralization and institutional reforms in the European Union, selected east European countries (including the former Yugoslavia), and Latin American and African countries has helped make fiscal federalism an increasingly hot topic. The Handbook of Fiscal Federalism-edited by the IMF's Ehtisham Ahmad and the University of Turin's Giorgio Brosio, and the focus of a November 15 IMF book forum-collects the latest thinking and applies a practical approach to a topic that clearly has political economy implications.

Moderator Teresa Ter-Minassian (IMF Fiscal Affairs Department) and panelists Ahmad, Vito Tanzi (Italian Ministry of Finance and former Director, IMF Fiscal Affairs Department), and Danny Leipziger (World Bank) highlighted the importance of devising appropriate and effective solutions for the many challenges that arise from devolving responsibilities and sharing resources across federal, provincial, and local jurisdictions.

Digging deeper

Hailing the handbook as "a major new contribution" to the field, Ter-Minassian noted that her own 1997 book, Fiscal Federalism in Theory and Practice, had broken ground in analyzing the macroeconomic implications of fiscal federalism. This new handbook, she said, digs deeper into intergovernmental fiscal issues, including recent developments in theory, and covers special issues such as the distribution of natural resources, environmental concerns, governance, corruption, and the importance of institutions.

Ahmad argued that there needs to be more effective and realistic modeling of fiscal federalism's political economy elements-particularly legal, political, and administrative issues; information flows; and incentives and sanctions. Traditional approaches, he said, cannot explain present-day institutional arrangements, which may range from federalism (Brazil, India) to unitary states with considerable autonomy (China, Indonesia) to the European Union's supranational arrangement. Distinctive challenges also confront postconflict countries (the Balkans, Sudan) and formerly planned economies. Down the...