"…fiscal federalism is concerned with 'understanding which functions and instruments are best centralized and which are best placed in the sphere of decentralized levels of government'."
Fiscal federalism is the study of how government spending and taxation are allocated between different levels of government. Public economics examines the advantages and disadvantages of different models of federalism such as centralized and decentralized systems.
Federalism: The relationship between federal and state governments, and the decentralization of power in a political system.
Taxation: The role of taxes in funding government programs, and the distribution of tax revenue between federal and state governments.
Intergovernmental transfers: The financial transfers from the federal government to state and local governments to assist funding of their programs.
Revenue sharing: The distribution of tax revenue between the federal and state governments, with the aim of promoting equal development across the country.
Grants-in-aid: The provision of financial support for specific programs at the state and local levels, with the aim of improving public services.
Mandates: The federal government's regulatory requirements passed down to state and local governments, often imposing specific rules and requirements for conducting certain activities.
Fiscal decentralization: The process of transferring powers and responsibilities from the federal government to state and local governments, while ensuring a sustainable fiscal framework.
Accountability mechanisms: Tools employed to ensure accountability and transparency in the governance and management of public finances at all levels of government.
Tax bases: The underlying economic activity that generates tax revenue, such as income, sales, property or corporate profits.
Fiscal equalization: A mechanism to redistribute tax revenue from richer to poorer regions, with the aim of promoting equal development and limiting regional disparities.
Vertical fiscal imbalance: The mismatch between the expenditure responsibilities of state and local governments and their revenue-raising capacity, which can lead to financial instability.
Tax effort: A measure of the extent to which a government is able to generate tax revenue given its tax base.
Efficiency and effectiveness in public service delivery: A consideration of how well public services are delivered, with the aim of reducing waste, increasing productivity, and improving public welfare.
Grants-in-aid: This type of fiscal federalism involves the central government providing funding to lower-level governments to support specific programs or initiatives.
Revenue sharing: In revenue sharing, the central government shares some of its revenue with lower levels of government, typically based on population or other factors such as a specific tax base.
Tax competition or tax exporting: This type of fiscal federalism involves each level of government setting its own tax policies to attract or retain businesses and residents within its jurisdiction.
Devolution: Devolution occurs when responsibilities for policy-making and implementation are transferred from the central government to subnational governments.
Fiscal equalization: Fiscal equalization involves the redistribution of funds from higher- to lower-income regions or from richer to poorer states or provinces to ensure that all citizens have access to equal public services.
Conditional grants: This type of fiscal federalism provides funding to lower-level governments, typically with specific conditions attached to ensure that the funding is used for specific purposes that align with the central government's objectives.
Sales tax sharing: In sales tax sharing, the central government shares revenue from sales taxes with lower-level governments, which can help to reduce regional disparities in revenue generation.
Tax earmarking: Tax earmarking occurs when specific taxes or tax revenues are set aside for specific purposes or programs, such as infrastructure or education funding, and can be allocated to lower levels of government.
User charges: User charges involve charging individuals or businesses for specific government services, such as utilities or transportation, and are often used to fund these services at the local level.
"…the system of transfer payments or grants by which a central government shares its revenues with lower levels of government."
"A conditional transfer… involves a certain set of conditions… An unconditional grant is usually a cash or tax point transfer, with no spending instructions."
"The concept of fiscal federalism is relevant for every type of government: unitary, federal, and confederal."
"While 'fiscal federalism' is a set of principles that can be applied to all countries attempting 'fiscal decentralization', fiscal federalism is a general normative framework for assignment of functions to the different levels of government and appropriate fiscal instruments for carrying out these functions."
"Governor of Rivers State of Nigeria, Ezenwo Nyesom Wike said that he believes true fiscal federalism will 'strengthen the economy of his country as all sections will develop based on their comparative advantages'."
"Federal and non-federal countries differ in the manner in which such principles are applied."
"The goal of modern fiscal federalism is not just to ensure the efficient allocation of resources, but also to protect liberty and restrain the power of government, to share legislative and fiscal competencies, to foster political participation and preserve markets."
"Application differs because unitary and federal governments differ in their political and legislative context and thus provide different opportunities for fiscal decentralization."
"Over time, the theory of fiscal federalism has evolved considerably."
"Fiscal federalism constitutes a set of guiding principles, a guiding concept."
"Fiscal decentralization, on the other hand, is a process of applying such principles."
"The goal of modern fiscal federalism is… to protect liberty and restrain the power of government."
"The goal of modern fiscal federalism is… to foster political participation."
"The goal of modern fiscal federalism is… to ensure the efficient allocation of resources."
"If the lower level of government is to receive this type of transfer, it must agree to the spending instructions of the federal government."
"An example of this would be a federal equalization transfer."
"It is the study of how competencies (expenditure side) and fiscal instruments (revenue side) are allocated across different (vertical) layers of the administration."
"Federal governments use this power to enforce national rules and standards."
"The system of transfer payments or grants… shares revenues with lower levels of government."