Fiscal federalism

Abstract

The organisation of responsibilities and finances between different levels of the state is a fundamental task for governments in achieving their political and public policy goals. This arrangement of powers and resources underpins how funding is allocated and distributed between government levels and geographical areas. Fiscal federalism refers to this organisation of responsibilities and funding. It has become increasingly important internationally following the expanded roles of national governments and their policies and funding programmes in responding to the Global Financial Crisis in 2008, the COVID-19 pandemic from 2020, and the recent geopolitical disruptions of conflict in Ukraine and the middle east. Fiscal federalism also informs debates about the decentralisation of governance and funding in devolving centralised states including the UK. This review outlines the definition of fiscal federalism, its underlying assumptions, principles of public funding allocation, advantages and disadvantages, before concluding.

This report is for the Improving Public Funding Allocations to Reduce Geographical Inequalities project funded by the ESRC.

The project brings together a highly experienced interdisciplinary team from the Universities of Birmingham, Bristol, De Montfort, Newcastle, Nottingham, Plymouth and Sheffield, together with the National Centre for Social Research and Metro Dynamics.