Book Review
Valdesalici, Alice and Francesco Palermo, 2018, Comparing Fiscal Federalism, Brill Nijhoff, 392 p. by Francisco Javier Romero Caro
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In a context of economic and political uncertainty, fiscal federalism has emerged as one of the most important topics when analyzing the functioning of a federal state and the relations between the national level and its constituent units. The book edited by Valdesalici and Palermo aims to address the distribution of financial resources in compound states and present the notion of fiscal federalism and its developments as well as future trends from a comparative interdisciplinary perspective. It is structured in three parts – with the first two dealing with the theoretical aspects while the third focuses on recent developments and future trends–comprising a total of sixteen chapters and deals with the classical aspects of fiscal federalism but also covers some topical issues such as the increasing role of intergovernmental relations in fiscal arrangements, fiscal centralization in times of crisis or the role of financial arrangements in order to accommodate subnational diversity. Although the book adopts a predominantly legal-constitutional perspective, it involves scholars from different disciplines in order to present a comprehensive analysis of the subject. The comparative perspective is present in all chapters, as they include both a theoretical perspective and the analysis of several case studies. As the book adopts an extensive definition of fiscal federalism, it features a wide range of case studies from different parts of the world, including the classic federal models, but also emerging federations and quasi-federal or regional states, regardless of their formal denomination. The first part of the book (Framework and Principles) aims to describe the main characteristics of the legal framework in the countries under study and to examine their basic principles. In Chapter 1, Valdesalici describes the dynamic nature of the concept of fiscal federalism, providing a working definition using the notion of financial constitution that serves as the guiding thread of the book. In the second chapter, Parolari focuses on the sources of law regulating the financial settings in a selection of case studies. Her analysis illustrates the difficulty to find a compromise between legal certainty and flexibility. Furthermore, she highlights an aspect of crucial relevance that deserves to be studied in depth: the role of the Courts and the executives in the development and reform of the financial framework, and the increasing importance of intergovernmental agreements. The following chapters of this part are devoted to the study of several of the basic principles upon which financial arrangements and fiscal relations are built: the principles of autonomy and solidarity, analyzed by Saunders in Chapter 3, and those of separation and correspondence, explored by Nicolini in Chapter 5. This part also features a chapter in which Hallet makes the case for fiscal decentralization from the point of view of economic theory, following the distinction between instrument and target independence in the area of fiscal policy. Although his analysis is of great interest as he adopts a different approach than the one in the previous chapters, it could be somehow difficult to understand for those that are not familiar with economic theory. The second part (Foundations) is composed of two sections. The first one deals with a classic component of fiscal federalism: the distribution of financial and fiscal powers in
Book review: Valdesalici and Palermo 2018, Comparing Fiscal Federalism 16 federal states. The classical revenue assignment problem is analyzed in Chapters 6 and 7 where Ambrosiano, Balduzzi and Peiti explore the different practices of revenue assignment, while Färber analyses the taxing powers of subnational entities in several case studies, focusing on how international tax competition has affected these powers. These two chapters are of particular interest as they go beyond the case studies and contain a large amount of data compiled by the authors that is very helpful to illustrate the phenomenon of revenue assignment. Another vital component of fiscal federalism, equalization transfers, is the subject of analysis by Ahmad and Brosio in chapter 8 as they discuss the different models of equalization mechanisms that exist among OECD countries, exploring their origins and main elements. As the authors adopt an economic perspective, they don’t pay much attention to the territorial tensions that are usually caused by these programs in compound states, an aspect that deserves closer scrutiny. This section also deals with deals with the administration of decentralized taxes as Bird makes the case for and against tax decentralization while paying attention to factors such as costs, accountability or economic efficiency. The second section of this part deals with a key matter in contemporary fiscal federalism: financial intergovernmental relations. This is particularly important in countries with open financial constitutions where the financial framework is not constitutionally entrenched, as noted early in the book by Parolari. In Chapter 10, Alber makes an in-depth analysis of the institutional framework and the intergovernmental financial practices in eight different models. This chapter is one of the main contributions of the book as it is a truly comparative study that is not limited to explaining the main elements of each system, but analyses each system with the perspective of the others, comparing the characteristics thereof and pointing out the similarities and differences that exists among models. This section is completed with a comparative study of the role of financial arrangements as instruments to accommodate sub-national diversity. Kress explores the role of financial arrangements in order to accommodate subnational diversity, a topic that has gained traction lately in the literature of nationalism and its accommodation. Finally, the third part of the book brings us New Perspectives on Fiscal Federalism, focusing on emerging issues from both a domestic and a supranational perspective. The domestic side is analyzed by Steytler and Ayele, as they explore the role of local governments as a constituent component of multilevel states in the constitutional architecture of four African countries, while the supranational dimension of fiscal federalism is presented by Schnellenbach with the paradigmatic case of the European Union. In Chapter 14, Kössler and Trettel deal with another issue that is gaining attention in the field of fiscal federalism: the question of fiscal centralization in times of crisis. Their analysis of the experiences of Italy and Spain is very illustrative as they show the increasing centralizing force coming from the EU and how it affects national states and territorial subunits. The last two chapters are aimed at summarizing the discussion and analysis presented in the book. They are structured as a dialogue between Watts and Palermo, where the latter tries to answer one of the questions posed by Watts, which
Book review: Valdesalici and Palermo 2018, Comparing Fiscal Federalism 17 concerns the pattern of decentralization, exploring the future trajectories of the regional dimension of fiscal federalism. Although Watts’ article is a republication, his arguments are still valid today and could also serve as a guide to read the book as he identifies the main elements of intergovernmental financial arrangements. The volume edited by Valdesalici and Palermo is called to become a reference in the literature of comparative fiscal federalism. It covers both the classical questions and some topical issues for those that would like to deepen their knowledge about the recent developments in the field of fiscal federalism. The comparative perspective is one the main strengths of the book as each chapter combines a brief theoretical framework with the in-depth study of several case studies where that framework is developed. Also, its interdisciplinary approach, involving law scholars, political scientists and economists, offers a comprehensive analysis that tries to address all the facets of the phenomenon of fiscal federalism but could be sometimes difficult to follow for those not experienced in the field of economic science. Hence, the book is of great interest for those that would like to engage in the discussion and enhance their knowledge regarding the allocation of financial and fiscal powers and the functioning of the financial relations in multilevel states as it highlights the main trends and future tendencies of fiscal federalism.