On Fiscal Federalism: Issues to Worry About

A couple decades ago fiscal federalism used to be a topic of marginal importance in most countries and in the economic literature. The world was broadly divided in federal states and unitary states and there were hardly any countries that planned to move from one to the other of these categories. In recent years, however, perhaps as a result of globalization and deepening democratization, combined with rising incomes, centrifugal forces seem to have been put into action in many countries. These forces have generated growing demands for increasing degrees of fiscal decentralization. It can be hypothesized that decentralization is a superior good, the demand for which is likely to grow with per capita income.