Towards Third-Generation Fiscal Federalism? Addressing the Evolution of the Literature in a Non-Compartmentalized Way

This paper provides a comprehensive examination of the evolution of fiscal federalism literature, challenging the widely held belief that it began with the First Generation Theory. It highlights the foundational contributions of Tocqueville, Stuart Mill, and other classical thinkers, illustrating how their insights on centralization, decentralization, and government motivations laid the groundwork for later developments. The paper critically evaluates the generational classifications in fiscal federalism theory, arguing that such divisions risk obscuring diverse and significant contributions. Key phases of the literature, including the "Golden Period" from the 1950s to the 1990s and the subsequent Second Generation Theory, are explored, with attention to landmark ideas like Musgrave's stabilization-allocation framework, Tiebout's mobility model, and Buchanan's club theory. The paper concludes by addressing contemporary challenges in fiscal federalism, including global risks, decentralized governance in developing countries, and the intersection of political economy with local government studies.