Empirical Fiscal Federalism

The enduring economic crisis proved that understanding the results of alternative fiscal arrangements in multi-tiered government structures is crucial for designing effective decentralization policies. This Element discusses approaches and methods used in recent empirical fiscal federalism literature, and identifies key areas for further research.

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Fiscal federalism has long been an important topic of inquiry in applied public economics, and interest in the functioning of intergovernmental fiscal relationships in multi-tiered public sector structures does not seem to be fading. Rather, the recent economic downturn and sovereign debt crisis have brought the analysis of multi-level fiscal governance to the forefront of academic discourse and stimulated the search for tax assignments that ease coordination between authorities at different tiers while preserving local fiscal autonomy and minimizing the harmful effects of taxation on the prospects of economic recovery. This Element examines the recent empirical work in this area and discusses the most critical issues that future research will need to address in order to push further the frontier of econometric analysis in fiscal federalism.