Federalism and Economic Reform: International Perspectives.(Book review)

Federalism and Economic Reform: International Perspectives

Jessica S Wallack and TN Srinivasan

Cambridge University Press: New York, NY, 2006, pp. 516, index.

doi:10.1057/ces.2008.32

Much admired across the globe, federalism promises both prosperity and freedom by sharing responsibilities across multiple levels of government. Adding the challenges of economic reform is the focus here. Wallack and Srinivasan provide analyses of how federalism has both affected and been affected by economic reform and global integration. The countries covered by highly regarded experts are Argentina, Australia, Brazil, Canada, China, India, Mexico, and Nigeria. In each case, we learn how federal arrangements have evolved from, how the global environment has affected them, and how the federal arrangements have affected necessary macroeconomic stability and institutional flexibility to bring about economic reform from widely varying initial conditions. These questions give the volume an admirable coherence.

The editors' introduction covers theoretical background, and highlight places where the models are based on assumptions that may be questionable in some cases. They also point out the generalisations that can be drawn from these diverse cases.

Although expenditure assignments vary in precision, all of the countries had a tendency towards de facto centralisation of control over expenditures and taxation. Even so, sub-national governments vary substantially in the degree to which they use the tax bases assigned to them. Taxes are only truly decentralised if sub-national governments are free to set the tax rates on their own tax base. In fact, many so-called local taxes are merely a portion of the centrally collected revenue allocated to local governments. Nearly every country in the study has moved towards a system in which the central government controls the tax base and provides grants to sub-national governments. This governmental redistribution of income is not sufficient, however, to compensate for inequalities owing to different capabilities of regions to adapt to opportunities provided by globalisation. The country studies also examine the efficacy of both market-based and rules-based limitations on sub-national borrowing.

With regard to the impact of federalism on economic reforms across the countries, one finds that the need for negotiations between central and sub-national governments impedes necessary reforms. The source and strength of sub-national government bargaining power with the central government varies widely across the countries, of course. Experience indicates that direct meetings between central and sub-national leaders are likely to be more effective than negotiations carried out with numerous subnational representatives within national parliaments.

This well-designed and carefully crafted volume will be useful to researchers in the field of fiscal federalism, students of the countries covered, and policy advisors.

John E Anderson

University of Nebraska, Lincoln, Nebraska, USA

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