Policy Legitimacy and Institutional Design: Comparative Lessons for theEuropean Union

Research on the democratic deficit in the European Union (EU) tends to focus on general questions of institutional design rather than the link between institutions and specific policy responsibilities. This article argues that, following EMU, a high degree of fiscal centralization is not tenable given theabsence of EU‐wide citizen support for a greatly enhanced central role and European political parties operating in a genuine European legislature. Given this, it is appropriate to examine fiscal relations in existing federations to discover which, if any, approximates to the likely post‐EMU pattern in the EU. The experience of five federations – Australia, Canada the US, Germany and Switzerland suggests that most can be learnt from the Swiss model which is characterized by a high degree of vertical fiscal autonomy, and state (cantonal) interpenetration of national decision‐making. The article concludes that, while Switzerland cannot serve as a model for the EU, the Swiss experience does show that a modern industrial state can successfully operate in the context of a high degree of fiscal decentralization.