IDEAS home Printed from https://ideas.repec.org/a/kap/itaxpf/v12y2005i4p349-373.html
   My bibliography  Save this article

Toward A Second-Generation Theory of Fiscal Federalism

Author

Listed:
  • Wallace Oates

Abstract

Drawing on a wide range of literature and ideas, a new “second-generation theory of fiscal federalism” is emerging that provides new insights into the structure and working of federal systems. After a restatement and review of the first-generation theory, this paper surveys this new body of work and offers some thoughts on the ways in which it is extending our understanding of fiscal federalism and on its implications for the design of fiscal institutions. Copyright Springer Science + Business Media, Inc. 2005

Suggested Citation

  • Wallace Oates, 2005. "Toward A Second-Generation Theory of Fiscal Federalism," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 12(4), pages 349-373, August.
    • Handle: RePEc:kap:itaxpf:v:12:y:2005:i:4:p:349-373
    DOI: 10.1007/s10797-005-1619-9
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s10797-005-1619-9
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s10797-005-1619-9?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Bucovetsky, S. & Marchand, M. & Pestieau, P., 1998. "Tax Competition and Revelation of Preferences for Public Expenditure," Journal of Urban Economics, Elsevier, vol. 44(3), pages 367-390, November.
    2. Ben Lockwood, 2002. "Distributive Politics and the Costs of Centralization," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 69(2), pages 313-337.
    3. Alberto Alesina & Enrico Spolaore, 1997. "On the Number and Size of Nations," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(4), pages 1027-1056.
    4. Robin Boadway, 1997. "Public Economics and the Theory of Public Policy," Canadian Journal of Economics, Canadian Economics Association, vol. 30(4), pages 753-772, November.
    5. Timothy Goodspeed, 2002. "Bailouts in a Federation," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 9(4), pages 409-421, August.
    6. Antonio Estache & J. Cremer & Paul Seabright, 1996. "Decentralizing Public Services: What can we learn from the Theory of the Firm?," ULB Institutional Repository 2013/44016, ULB -- Universite Libre de Bruxelles.
    7. Oates, Wallace E, 1985. "Searching for Leviathan: An Empirical Study," American Economic Review, American Economic Association, vol. 75(4), pages 748-757, September.
    8. Bruni S. Frey, 1999. "The New Democratic Federalism For Europe," Books, Edward Elgar Publishing, number 1679 edited by Reiner Eichenberger.
    9. Bolton, Patrick & Roland, Gerard & Spolaore, Enrico, 1996. "Economic theories of the break-up and integration of nations," European Economic Review, Elsevier, vol. 40(3-5), pages 697-705, April.
    10. Yingyi Qian & Barry R. Weingast, 1997. "Federalism as a Commitment to Reserving Market Incentives," Journal of Economic Perspectives, American Economic Association, vol. 11(4), pages 83-92, Fall.
    11. Olivier Blanchard & Andrei Shleifer, 2001. "Federalism With and Without Political Centralization: China Versus Russia," IMF Staff Papers, Palgrave Macmillan, vol. 48(4), pages 1-8.
    12. Kornai, J, 1979. "Resource-Constrained versus Demand-Constrained Systems," Econometrica, Econometric Society, vol. 47(4), pages 801-819, July.
    13. Sinn, Hans-Werner, 1997. "The selection principle and market failure in systems competition," Journal of Public Economics, Elsevier, vol. 66(2), pages 247-274, November.
    14. Wildasin, David E., 2004. "The Institutions of Federalism: Toward an Analytical Framework," National Tax Journal, National Tax Association;National Tax Journal, vol. 57(2), pages 247-272, June.
    15. Mariano Tommasi & Federico Weinschelbaum, 2007. "Centralization vs. Decentralization: A Principal‐Agent Analysis," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 9(2), pages 369-389, April.
    16. J. Kornai & E. Maskin & G. Roland, 2004. "Understanding the Soft Budget Constraint," Voprosy Ekonomiki, NP Voprosy Ekonomiki, issue 11.
    17. Rodden, Jonathan, 2003. "Reviving Leviathan: Fiscal Federalism and the Growth of Government," International Organization, Cambridge University Press, vol. 57(4), pages 695-729, October.
    18. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association;National Tax Journal, vol. 52(2), pages 269-304, June.
    19. Sobel, Russell S, 2002. "Defending the Articles of Confederation: A Reply to Dougherty," Public Choice, Springer, vol. 113(3-4), pages 287-299, December.
    20. Lockwood, Ben, 1999. "Inter-regional insurance," Journal of Public Economics, Elsevier, vol. 72(1), pages 1-37, April.
    21. Rosella Levaggi, 2002. "Decentralized Budgeting Procedures for Public Expenditure," Public Finance Review, , vol. 30(4), pages 273-295, July.
    22. Jan K. Brueckner, 2004. "Fiscal Decentralization with Distortionary Taxation: Tiebout vs. Tax Competition," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 11(2), pages 133-153, March.
    23. Patrick Bolton & Gérard Roland, 1997. "The Breakup of Nations: A Political Economy Analysis," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(4), pages 1057-1090.
    24. Roger H. Gordon, 1983. "An Optimal Taxation Approach to Fiscal Federalism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 98(4), pages 567-586.
    25. Persson, Torsten & Tabellini, Guido, 1996. "Federal Fiscal Constitutions: Risk Sharing and Moral Hazard," Econometrica, Econometric Society, vol. 64(3), pages 623-646, May.
    26. Wildasin, David E., 1997. "Externalities and bailouts : hard and soft budget constraints in intergovernmental fiscal relations," Policy Research Working Paper Series 1843, The World Bank.
    27. Inman, Robert P. & Rubinfeld, Daniel L., 1992. "Fiscal federalism in Europe : Lessons from the United States experience," European Economic Review, Elsevier, vol. 36(2-3), pages 654-660, April.
    28. Sinn, Hans-Werner, 1994. "How Much Europe? Subsidiarity, Centralization and Fiscal Competition," Scottish Journal of Political Economy, Scottish Economic Society, vol. 41(1), pages 85-107, February.
    29. Robert P. Inman, 1988. "Federal Assistance and Local Services in the United States: The Evolution of a New," NBER Chapters, in: Fiscal Federalism: Quantitative Studies, pages 33-78, National Bureau of Economic Research, Inc.
    30. Massimo Bordignon & Paolo Manasse & Guido Tabellini, 2001. "Optimal Regional Redistribution under Asymmetric Information," American Economic Review, American Economic Association, vol. 91(3), pages 709-723, June.
    31. Schick, Allen, 1998. "Why Most Developing Countries Should Not Try New Zealand's Reforms," The World Bank Research Observer, World Bank, vol. 13(1), pages 123-131, February.
    32. Wallace E. Oates & Wallace E. Oates, 2004. "Fiscal and Regulatory Competition: Theory and Evidence," Chapters, in: Environmental Policy and Fiscal Federalism, chapter 11, pages 195-208, Edward Elgar Publishing.
    33. Brennan,Geoffrey & Buchanan,James M., 2006. "The Power to Tax," Cambridge Books, Cambridge University Press, number 9780521027922, November.
    34. Besley, Timothy & Coate, Stephen, 2003. "Centralized versus decentralized provision of local public goods: a political economy approach," Journal of Public Economics, Elsevier, vol. 87(12), pages 2611-2637, December.
    35. Oates, Wallace E. & Schwab, Robert M., 1988. "Economic competition among jurisdictions: efficiency enhancing or distortion inducing?," Journal of Public Economics, Elsevier, vol. 35(3), pages 333-354, April.
    36. Jonathan A. Rodden & Gunnar S. Eskeland (ed.), 2003. "Fiscal Decentralization and the Challenge of Hard Budget Constraints," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262182297, December.
    37. Persson, Torsten & Tabellini, Guido, 1996. "Federal Fiscal Constitutions: Risk Sharing and Redistribution," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 979-1009, October.
    38. Seabright, Paul, 1996. "Accountability and decentralisation in government: An incomplete contracts model," European Economic Review, Elsevier, vol. 40(1), pages 61-89, January.
    39. Besley, Timothy & Case, Anne, 1995. "Incumbent Behavior: Vote-Seeking, Tax-Setting, and Yardstick Competition," American Economic Review, American Economic Association, vol. 85(1), pages 25-45, March.
    40. Qian, Yingyi & Roland, Gerard, 1998. "Federalism and the Soft Budget Constraint," American Economic Review, American Economic Association, vol. 88(5), pages 1143-1162, December.
    41. Horst Raff & John Wilson, 1997. "Income Redistribution with Well-Informed Local Governments," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 4(4), pages 407-427, November.
    42. Wellisch,Dietmar, 2000. "Theory of Public Finance in a Federal State," Cambridge Books, Cambridge University Press, number 9780521630351, November.
    43. Olson, Mancur, Jr, 1969. "The Principle of "Fiscal Equivalence": The Division of Responsibilities among Different Levels of Government," American Economic Review, American Economic Association, vol. 59(2), pages 479-487, May.
    44. Inman, Robert P. & Rubinfeld, Daniel L., 1996. "Designing tax policy in federalist economies: An overview," Journal of Public Economics, Elsevier, vol. 60(3), pages 307-334, June.
    45. Giampaolo GARZARELLI & Yasmina Reem LIMAM, 2003. "Knowledge, Coordination, and Fiscal Federalism: An Organizational Perspective," Public Economics 0304001, University Library of Munich, Germany.
    46. S. Bucovetsky, 1997. "Insurance and Incentive Effects of Transfers among Regions: Equity and Efficiency," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 4(4), pages 463-483, November.
    47. Buchanan, James M & Faith, Roger L, 1987. "Secession and the Limits of Taxation: Toward a Theory of Internal Exit," American Economic Review, American Economic Association, vol. 77(5), pages 1023-1031, December.
    48. Harvey S. Rosen, 1988. "Fiscal Federalism: Quantitative Studies," NBER Books, National Bureau of Economic Research, Inc, number rose88-1, June.
    49. Massimo Bordignon & Floriana Cerniglia & Federico Revelli, 2002. "In Search for Yardstick Competition: Property Tax Rates and Electoral Behavior in Italian Cities," CESifo Working Paper Series 644, CESifo.
    50. Weingast, Barry R, 1995. "The Economic Role of Political Institutions: Market-Preserving Federalism and Economic Development," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 11(1), pages 1-31, April.
    51. Sobel, Russell S, 1999. "In Defense of the Articles of Confederation and the Contribution Mechanism as a Means of Government Finance: A General Comment on the Literature," Public Choice, Springer, vol. 99(3-4), pages 347-356, June.
    52. Oates, Wallace E, 1989. "Searching for Leviathan: Reply," American Economic Review, American Economic Association, vol. 79(3), pages 578-583, June.
    53. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Reingewertz, Yaniv, 2014. "Fiscal Decentralization - a Survey of the Empirical Literature," MPRA Paper 59889, University Library of Munich, Germany.
    2. Wallace E. Oates, 2006. "On the Theory and Practice of Fiscal Decentralization," Working Papers 2006-05, University of Kentucky, Institute for Federalism and Intergovernmental Relations.
    3. Jorge Martinez-Vazquez & Santiago Lago-Peñas & Agnese Sacchi, 2017. "The Impact Of Fiscal Decentralization: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 31(4), pages 1095-1129, September.
    4. Lars P. Feld & Wolfgang Kerber, 2006. "Mehr-Ebenen Jurisdiktionssysteme: Zur variablen Architektur von Integration," Marburg Working Papers on Economics 200605, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    5. Boadway, Robin & Tremblay, Jean-François, 2012. "Reassessment of the Tiebout model," Journal of Public Economics, Elsevier, vol. 96(11), pages 1063-1078.
    6. Wallace E. Oates & Wallace E. Oates, 2004. "Fiscal Competition and European Union: Contrasting Perspectives," Chapters, in: Environmental Policy and Fiscal Federalism, chapter 10, pages 182-194, Edward Elgar Publishing.
    7. Alice Y. Ouyang & Rui Li, 2021. "Fiscal decentralization and the default risk of Chinese local government debts," Contemporary Economic Policy, Western Economic Association International, vol. 39(3), pages 641-667, July.
    8. Besfamille, Martin & Lockwood, Ben, 2004. "Are Hard Budget Constraints for Sub-National Governments Always Efficient?," The Warwick Economics Research Paper Series (TWERPS) 717, University of Warwick, Department of Economics.
    9. Hans-Günter Krüsselberg, 2005. "Milton Friedman und der Wissenschaftliche Beirat für Familienfragen Elternkompetenz und Anteilscheine am Schulbudget – Gedanken über Reformpotenziale," Marburg Working Papers on Economics 200506, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    10. Antonio Sciala' & Paolo Liberati, 2008. "The impact of economic openness on the vertical structure of the public sector," "Marco Fanno" Working Papers 0085, Dipartimento di Scienze Economiche "Marco Fanno".
    11. Manuel E. Lago & Santiago Lago-Peñas & Jorge Martinez-Vazquez, 2024. "On the effects of intergovernmental grants: a survey," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 31(3), pages 856-908, June.
    12. Weingast, Barry R., 2009. "Second generation fiscal federalism: The implications of fiscal incentives," Journal of Urban Economics, Elsevier, vol. 65(3), pages 279-293, May.
    13. Wallace E. Oates & Wallace E. Oates, 2004. "Fiscal and Regulatory Competition: Theory and Evidence," Chapters, in: Environmental Policy and Fiscal Federalism, chapter 11, pages 195-208, Edward Elgar Publishing.
    14. Leonzio Rizzo, 2006. "Le inefficienze della competizione fiscale: una rassegna dei principali modelli teorici," Economia politica, Società editrice il Mulino, issue 1, pages 89-120.
    15. Breuille, Marie-Laure & Gary-Bobo, Robert J., 2007. "Sharing budgetary austerity under free mobility and asymmetric information: An optimal regulation approach to fiscal federalism," Journal of Public Economics, Elsevier, vol. 91(5-6), pages 1177-1196, June.
    16. Dur, Robert & Staal, Klaas, 2008. "Local public good provision, municipal consolidation, and national transfers," Regional Science and Urban Economics, Elsevier, vol. 38(2), pages 160-173, March.
    17. Lars P. Feld & Gebhard Kirchgässner & Christoph A. Schaltegger, 2010. "Decentralized Taxation and the Size of Government: Evidence from Swiss State and Local Governments," Southern Economic Journal, John Wiley & Sons, vol. 77(1), pages 27-48, July.
    18. Lars Feld, 2014. "James Buchanan’s theory of federalism: from fiscal equity to the ideal political order," Constitutional Political Economy, Springer, vol. 25(3), pages 231-252, September.
    19. Jurgen von Hagen, 2016. "Fiscal Federalism: Public Goods, Transfers, and Common Pools," Cyprus Economic Policy Review, University of Cyprus, Economics Research Centre, vol. 10(2), pages 41-75, December.
    20. Bellofatto, Antonio Andrés & Besfamille, Martín, 2021. "Tax decentralization notwithstanding regional disparities," Journal of Urban Economics, Elsevier, vol. 123(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:itaxpf:v:12:y:2005:i:4:p:349-373. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.