Hamilton's Paradox
The Promise and Peril of Fiscal Federalism

This book explains why different countries have had dramatically different experiences with subnational fiscal discipline.

Jonathan A. Rodden (Author)

9780521842693, Cambridge University Press

Hardback, published 26 December 2005

334 pages, 22 tables
23.5 x 15.7 x 2.4 cm, 0.558 kg

"This is a landmark book on fiscal federalism and one that will be influential both in policy circles and in the academy for many years to come." Mark Hallerberg, Emory University

As new federations take shape and old ones are revived around the world, a difficult challenge is to create incentives for fiscal discipline. A key question is whether a politically-motivated central government can credibly commit not to bail out subnational governments in times of crisis if it funds most of their expenditures. The center can commit when subnational governments retain significant tax autonomy, as in the United States. Or if the center dominates taxation, it can tightly regulate borrowing, as in many unitary systems. In a third group of countries including Brazil and Germany, the center can neither commit to a system of market-based discipline nor gain a monopoly over borrowing. By combining theory, quantitative analysis, and historical and contemporary case studies, this book explains why different countries have had dramatically different experiences with subnational fiscal discipline.

1. Introduction and overview
2. Promise and peril: intellectual history
3. Sovereignty and commitment
4. The power of the purse: intergovernmental grants and fiscal discipline
5. Disease or cure? Political parties and fiscal discipline
6. An approach to comparative case studies
7. Fiscal federalism and bailouts in postwar Germany
8. The crisis of fiscal federalism in Brazil
9. The challenge of reform in federations
10. The origins of subnational sovereignty
11. Conclusions.

Subject Areas: Economic history [KCZ], Comparative politics [JPB]