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Unformatted text preview: ic policy of a single canton that profit the residents of other cantons
(financial agreements for university education, for instance). Federations like Switzerland and Germany sometimes give
preference to horizontal cooperative mechanisms that do not depend on centralized involvement.
These intergovernmental cooperative structures between federated entities also bolster their collective negotiating
power with the federal government. For instance, in Switzerland, according to Bernard Dafflon:
10 Following this analysis, David Collins concludes that the increase in vertical fiscal imbalance following the 2000 reform of the fiscal arrangements will
have harmful effects on the efficiency of resource allocation in Australia.
We speak of “externalities” when the decentralized delivery of a public service generates benefits outside the borders of the territorial communities
that provide them. 3 Commission on Fiscal Imbalance […] fiscal matter cannot be decided at the federal level without previous consultation of the CCMF
[Conference of the Cantonal Ministers of Finance]. It is a powerful pressure group, regularly consulted
by the federal Finance Administration. It has been successful in negotiating global financial packages
in which the point of view of the cantons differs from that of the federal government. It has played an
important role in shaping federal finance, the federal tax system and tax harmonisation, which was to
remain ‘formal’, and has a dominant position in federal equalisation policies (p. 65). 2.2. Matching Revenue and Spending: Fiscal Autonomy and Transfers
The benefits of decentralized delivery cannot be fully achieved unless supported by financial resources, without which
decentralization would be devoid of meaning. Accordingly, it is necessary to match responsibilities for spending and
sources of revenue as closely as possible. That is why all the texts deal with the crucial issue of funding of regional or
federal political entities, as the case may be. Each country studied in the texts received has its own way of dealing with
In practical terms, this matching takes various forms, each one corresponding to a greater or lesser degree of autonomy
of the federated entities. The first is to ensure that these entities have access to their own sources of revenue, and that
such access is constitutionally protected. The second is to provide them with federal cash transfers, consisting of grants
from the federal budget, i.e. a share of tax proceeds of which at least some parameters are set by the federal
government. 2.2.1. Fiscal Autonomy Fiscal autonomy assumes that the federated states have access to tax fields over which they exercise control. Such
control may be total (definition of the tax base, establishment of the applicable rates and collection); this refers to “own
taxes”. However, the control may be limited to control over setting rates applicable to a tax base defined by the federal
government; this refers to “joint taxes”.
There are advantages to matching revenue and spending between orders of government in this way. Ideally, the
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