Fiscal Federalism in Argentina: Policies, Politics, and Institutional Reform

Abstract

Argentine fiscal federalism is considered to be very inefficient by all specialists. Its allocation of tax and spending authorities, and its system of intergovernmental transfers do not correspond to any economic criteria and provide all sorts of perverse incentives and obstacles for sound economic policies. Agreeing with the above diagnostic, we attempt to take a step further and to provide an explanation for the many inefficient features of Argentine fiscal federalism. In order to do that, we apply and further develop an approach, presented in Spiller and Tommasi (2000) that tries to explain public policies as the outcome of political transactions. These approach argues that the nature and characteristics of the observed policies will be conditioned by the rules of the political game under which those t ransactions / policies are made. Hence, it re-focuses " policy recommendations " from the level of policy reform to the level of institutional reforms, with emphasis on political institutions.