The Future of Federalism: Intergovernmental financial relations in an age of austerity

Federal systems faced unprecedented pressures as the financial crisis at the end of the first decade of the 21st century evolved into an era of ongoing fiscal difficulties for governments associated with the rapid growth in debt obligations by national and subordinate levels of government. Parallel economic development has led to similar fiscal fundamentals for all developed economies, with governments largely relying on similar tax bases for revenue and providing similar types of health, education and social welfare benefits. It might have been expected that the crisis and post-crisis pressures would have similar impacts across federal states, either exacerbating underlying tensions in federal systems or prompting cooperation to resolve new problems that could have overwhelmed pre-existing subordinate-national government relationships. A study of political and fiscal responses in 12 federal jurisdictions revealed a remarkable diversity in responses, suggesting political economy theories on federalism need careful fine tuning to account for details of the constitutional, social and political factors peculiar to each jurisdiction.