Fiscal federalism: Federalism’s nerve tissue?

Abstract

This chapter guides teaching the subject of fiscal federalism. Fiscal federalism studies the benefits and costs of fiscal decentralization, fiscal competition, the division of taxing, spending, borrowing, and regulatory powers, and the exercise of such powers by multiple orders of government in federations. It also provides a framework based on fundamental economic principles to evaluate the division of constitutional authority and its exercise in these areas to advance the public interest. Thus, it covers the positive and normative aspects of decentralized fiscal arrangements. The chapter introduces fiscal federalism, reasons for studying this subject, and its place in the broader field of federalism studies. It highlights learning objectives for a course on fiscal federalism and how to structure such a course for teaching. It also suggests questions for classroom discussions, essential reading materials, test questions, and points that evaluate the impact of learning.