Federal states have one additional problem compared to unitary states, i.e. they need to coordinate several territorial levels in order to implement effective fiscal policies in answer to the on-going economic and financial crisis, often called the “Great Recession”. In the article it is asked to what extent and under what circumstances eleven federations throughout the world have been able to overcome coordination problems and what have been the reasons for failure. What kind of systematic differences between federations do exist in this respect? Our second interest is in the consequences of ineffective fiscal policy-making for federal relations. We start from the idea that the economic crisis causes particular strain on federal relations because financial relations are questioned in several ways. Ineffective policy-making may very well lead to reform attempts that lead to changes in the federal balance of forces. One hypothesis in this respect in the literature is that economic crises have the tendency to strengthen the federal government and centralisation. We will analyse to what extent such shifts in power have indeed taken place, in which federations and to what extent. Overall, the article should give insights in the effects of economic and financial crises for federal stability.
