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Fiscal Federalism in the Twenty-First Century

Author

Listed:
  • David R. Agrawal

    (Martin School of Public Policy and Department of Economics, University of Kentucky, Lexington, Kentucky, USA)

  • Jan K. Brueckner

    (Department of Economics, University of California, Irvine, California, USA)

  • Marius Brülhart

    (Department of Economics, Faculty of Business and Economics, University of Lausanne, Lausanne, Switzerland)

Abstract

Fiscal federalism concerns the division of policy responsibilities among different levels of government. Many current economic and policy developments, such as globalization, environmental crises, and rising inequality, may not appear to be favorable to fiscal federalism, yet countries are further decentralizing their fiscal systems. We summarize the efficiency and equity aspects of fiscal decentralization, fiscal competition, fiscal externalities, and intergovernmental grants. The review introduces readers to theoretical reasons for/against a federalist structure. We discuss how federalism relates to classic problems in economics: externalities, inequality, spillovers, information, and aspects of political economy. Our review integrates both theory and empirics, while also focusing on the variety of federal systems in different countries, both developing and developed. We conclude by discussing how fiscal federalism is being shaped by economic, technological, and environmental changes, while discussing the effects of globalization, polarization, and global crises on the future of federal systems.

Suggested Citation

  • David R. Agrawal & Jan K. Brueckner & Marius Brülhart, 2024. "Fiscal Federalism in the Twenty-First Century," Annual Review of Economics, Annual Reviews, vol. 16(1), pages 429-454, August.
    • Handle: RePEc:anr:reveco:v:16:y:2024:p:429-454
    DOI: 10.1146/annurev-economics-081623-020713
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    More about this item

    Keywords

    fiscal competition; intergovernmental relations; grants; decentralization; fiscal externalities; fiscal federalism;
    All these keywords.

    JEL classification:

    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • R50 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - General
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General

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