Fiscal federalism is an institution of public finance where national and subnational governments have revenue raising and spending powers to ensure the efficiency of delivering public goods. Fiscal federalism implies the federal government’s duty of redistribution for subnational units and assumes duty of solidarity among subnational units. Although traditional theory sees fiscal federalism as enhancing efficiency of fiscal policy, the "second generation" theory brings political economy approach. The elected governments of the subnational units may have different fiscal preferences and may not uniformly agree to redistribution and duty of solidarity.
Some subnational units want to renegotiate institutional fiscal arrangements while other seem to be fully satisfied with fiscal federalism and commit to solidarity principle. What shapes the different preferences among subnational units? This paper analyzes the fiscal preferences of subnational units in quasi-federal states (Spain, Italy, the UK) based on political economy approach to fiscal federalism.
