Key issues of Ensuring Regional Revenue Autonomy in Federal Countries

---

This article surveys typical federal limitations on regional revenue autonomy (Russian Federation, Germany, Switzerland, Australia, Canada, United States of America are cited as examples). Most federal constitutions define revenue-raising powers of the federal and subnational governments. Taxing powers of subnational governments are usually restricted: the federation’s constituent units (regions, states, provinces etc.) do not have access to the major tax sources. That is the main reason for low tax revenues of regional governments and for the lack of their real financial autonomy. Fiscal dominance of the federal government and poor subnational revenue sources (which often are inadequate to finance the expenditures assigned to regional governments) are common features of almost all federations around the world. Unconditional grants are made to the regions to ensure that regional governments have equal fiscal capacities for delivering essential public services. These grants are widely criticized by foreign economists for causing state dependency on central financial resources (the so-called “transfer dependency”). This article provides a review of the key ideas about subnational revenue autonomy in works of foreign scientists and researchers. Many economists emphasize that regional revenue autonomy must be real, not formal: regional governments should be responsible for raising the revenues they spend. If subnational or regional financial autonomy is really going to be real, local governments should rely on their own revenues for financing the services they deliver. The author of this article points out that Russia and other federative states have common revenue assignment problems. The author also suggests a revenue sharing reform with due regard for foreign experience in this field.

About the author: Tatiana Bratko – LL.M., Ph.D. student (St. Petersburg University); tax adviser.

Citation: Bratko T. (2016) Osnovnye problemy obespecheniya samostoyatel'nosty sub'ektov federatsii v sfere formirovaniya budgetnykh dokhodov [Key issues related of regional revenue autonomy in federal countries]. Sravnitel'noe konstitutsionnoe obozrenie, no.3, pp.40–51. (In Russian).

References

Ahmad E., Brosio G. (2008) Political Economy of Multi-Level Tax Assignments in Latin American Countries: Earmarked Revenue Versus Tax Autonomy: IMF Working Paper WP/08/71, Washington, DC: International Monetary Fund. Available at: https://www.imf.org/external/pubs/ft/wp/2008/wp0871.pdf (accessed 15.01.2016).

Rodden J.A., Eskeland G.S., Litvack J.I. (eds.) (2003) Fiscal Decentralization and the Challenge of Hard Budget Constraints, Cambridge, MA: MIT Press.

Bizioli G., Sacchetto C. (eds.) (2011) Tax Aspects of Fiscal Federalism: A Comparative Analysis, Amsterdam: IBFD.

Ashworth J., Galli E., Padovano F. (2013) Decentralization as a Constraint to Leviathan: A Panel Cointegration Analysis. Public Choice, vol.156, no.3–4, pp.491–516.

Rosen H.S. (ed.) (2008) Fiscal Federalism: Quantitative Studies, 2^nd ed., Chicago, IL: University of Chicago Press.

Garrett E., Graddy E.A., Jackson H.E. (eds.) (2008) Fiscal Challenges: An Interdisciplinary Approach to Budget Policy, Cambridge: Cambridge University Press.

Ebel R.D., Petersen J.E. (eds.) (2012) The Oxford Handbook of State and Local Government Finance, Oxford: Oxford University Press.

Bird R.M., Vaillancourt F. (eds.) (2006) Perspectives on Fiscal Federalism, Herndon, VA: World Bank Publications.

Blankenagel' A. (2015) Raspredelenie bremeni raskhodov v germanskom federativnom gosudarstve [The Burden of Budget Expenses in the German Federal State]. Sravnitel'noe konstitutsionnoe obozrenie, no.2, pp.22–31. (In Russian).

Boadway R., Shah A. (eds.) (2006) Intergovernmental Fiscal Transfers: Principles and Practice, Washington, DC: World Bank Publications.

Blindenbacher R., Karos A.O. (eds.) (2006) Dialogues on the Practice of Fiscal Federalism: Comparative Perspectives, Montreal: McGill-Queen's University Press.

Brennan G., Eusepi G. (2004) Fiscal Constitutionalism. In: Backhaus J.G., Wagner R.E. (eds.) Handbook of Public Finance, New York [etc.]: Springer-Verlag New York Inc., pp.53–76.

Courchene T.J. (2006) Energy Prices, Equalization and Canadian Federalism: Comparing Canada's Energy Price Shocks. Queen's Law Journal, vol.31, no.2, pp.644–695.

Elazar D.J. (1972) Fiscal Questions and Political Answers in Intergovernmental Finance. Public Administration Review, vol.32, no.5, pp.471–478.

Filimon R., Romer T., Rosenthal H. (1982) Asymmetric Information and Agenda Control: The Bases of Monopoly Power in Public Spending. Journal of Public Economics, vol.17, no.1, pp.51–70.

Kelders C., Koethenbuerger M. (2010) Tax Incentives in Fiscal Federalism: An Integrated Perspective. The Canadian Journal of Economics, vol.43, no.2, pp.683–703.

Kincaid J. (2012) The Constitutional Frameworks of State and Local Government Finance. In: Ebel R.D., Petersen J.E. (eds.) The Oxford Handbook of State and Local Government Finance, Oxford; New York: Oxford University Press, pp.45–82.

Lav I.J. (2012) Accomplishing State Budget Policy and Process Reforms. In: Ebel R.D., Petersen J.E. (eds.) The Oxford Handbook of State and Local Government Finance, Oxford; New York: Oxford University Press, pp.871–893.

Mieszkowski P., Musgrave R.A. (1999) Federalism, Grants, and Fiscal Equalization. National Tax Journal, vol.52, no.2, pp.239–260.

Morozova O.S. (2015) Pravovoe regulirovanie mezhbyudzhetnykh otnosheniy v FRG [Legal regulation of intergovernmental fiscal relations in Germany], Moscow: Prospekt. (In Russian).

Niskanen W.A. (1971) Bureaucracy and Representative Government, Chicago, IL: Aldine Atherton.

Oates W.E. (1999) An Essay on Fiscal Federalism. Journal Of Economic Literature, vol.37, no.3, pp.1120–1149.

Oates W.E. (2008) On the Evolution of Fiscal Federalism: Theory and Institutions. National Tax Journal, vol.61, no.2, pp.313–334.

Penner R.G. (2012) Fiscal Austerity and the Future of Federalism. In:

Ebel R.D., Petersen J.E. (eds.) The Oxford Handbook of State and Local Government Finance, Oxford; New York: Oxford University Press, pp.894–916.

Selway B., Williams J.M. (2005) The High Court and Australian Federalism. Publius, vol.35, no.3, pp.467–488.

Sheveleva N.A. (2004) Byudzhetnaya sistema Rossii: opyt i perspektivy pravovogo regulirovaniya v period sotsial'no-ekonomicheskikh reform [Russian budgetary system: experience and perspectives of legal regulation at the time of socioeconomic reforms], St.Petersburg: Publishing House of Saint Petersburg State University Law Faculty. (In Russian).

Smart M. (2009) The Evolution of Federal Transfers since the O'Brien Report: Paper prepared for the John Deutsch Institute conference on “The 2009 Federal Budget: Challenge, Response and Retrospect” held at Queen's University on May 7–8, 2009, Kingston: John Deutsch Institute. Available at: http://homes.chass.utoronto.ca/~msmart/wp/jdi09-v2.pdf (accessed 15.01.2016).

Somin I. (2002) Closing the Pandora's Box of Federalism: The Case for Judicial Restriction of Federal Subsidies to State Governments. Georgetown Law Journal, vol.90, no.2, pp.461–502.

Stark K.J. (2010) Rich States, Poor States: Assessing the Design and Effect of a U.S. Fiscal Equalization Regime. Tax Law Review, vol.63, no.4, pp.957–1008.

Super D.A. (2005) Rethinking Fiscal Federalism. Harvard Law Review, vol.118, no.8, pp.2544–2652.

Val'dkhoff K. (2015) Finansovoe vyravnivanie v Federativnoy Respublike Germanii i ego reforma [Germany's financial adjustment system and its reform]. Sravnitel'noe konstitutsionnoe obozrenie, no.2, pp.11–21. (In Russian).

Ward R.B. (2012) Achieving Fiscal Sustainability for State and Local Governments. In: Ebel R.D., Petersen J.E. (eds.) The Oxford Handbook of State and Local Government Finance. Oxford; New York: Oxford University Press, pp.917–936.

Webb R. (2006) Developments in Commonwealth-state financial relations since 2000–01. Available at: http://www.aph.gov.au/binaries/library/pubs/rb/2005-06/06rb11.pdf (accessed 15.01.2016).

Wildasin D.E. (2007) Pre-Emption: Federal Statutory Intervention in State Taxation. National Tax Journal, vol.60, no.3, pp.649–662.