Financial Markets Matter More than Fiscal Institutions for the Success of the Euro

Many argue that the euro is handicapped as a currency because European governments are unwilling to pool responsibility for fiscal policy in common institutions. This argument is derived from the theory of optimum currency areas and fuelled by analogy with US experience. It is mistaken. A monetary union does not need a fiscal union to work. Worse, efforts to build European fiscal institutions are likely to distract European policymakers from a more important agenda. Europe needs a fully functioning banking union with a common risk-free asset if Europeans want to stabilise the euro as a common currency. Moreover, it would need these things even if the euro did not exist and all it had was the common market. Financial stability – and not fiscal federalism – is the key to Europe's future. European policymakers should focus their efforts on building the necessary institutions.     

Fiscal Decentralization and Natural Disaster Mitigation: Evidence from the United States

How decentralized government structure influences public service delivery has been a major focus of debate in the public finance literature. In this paper, we empirically examine the effect of fiscal decentralization on natural disaster damages across the U.S. states. We construct a unique measure of decentralization using state and local government expenditures on natural resources, which include investment in flood control and mitigation measures, among others. Using state‐level panel data from 1982 to 2011, we find that states that are more decentralized in natural resource expenditures have experienced more economic losses from floods and storms. This effect is only pronounced in states that are at higher risks of flooding. Our findings suggest that fiscal decentralization may lead to inefficient protection against natural disasters and provide implications for the assignment of disaster management responsibilities across different levels of government in the U.S. federal system.     

Was It Worth It? The Territorial Reform in the Canton of Glarus

This paper examines the financial impact of the 2011 reform of the local governments and jurisdictions in the canton of Glarus. After a popular vote 70 public entities were reorganized to form three large uniformed communes. Previous research showed that amalgamations do not automatically lead to savings in public expenditures and economies of scale. We empirically apply the synthetic control method and show that the territorial reform realized some savings in public expenditure. However, the effect of the reorganization of tasks and responsibilities between the canton and the communes was more influential. The reform must be understood as a horizontal and vertical venture that encompasses both the communes and the canton, much more far‐reaching than a pure local territorial reform.     

Intergovernmental councils and centralization in Australian federalism

ABSTRACT

This paper explores how a high level of vertical intergovernmentalism and a low level of horizontal intergovernmentalism reflect as well as contribute to a high degree of centralization in Australian federalism and in the role and activity of intergovernmental councils (IGCs). Pre-eminent among the latter is the Council of Australian Governments (COAG), which sits at the apex of a system of ministerial councils and attendant agencies. Policy coordination is the principal motivation behind the Commonwealth’s use of COAG. The States established their own horizontal body in 2006 but that faded quickly in an experience that confirmed the underlying realities of Australian federalism.     

Sovereign Wealth Fund and fiscal federalism in Nigeria (2011–14): An assessment of contending issues

After more than half a century as a leading oil-producing nation in Africa, Nigeria followed the footsteps of most natural resources rich countries (particularly crude-oil) by establishing the Sovereign Wealth Fund (SWF). SWF is a large pool of state-owned investment fund composed of diverse financial instruments, invested in whole or in part, outside home countries. Since 2004, ‘Special funds’, of which SWF is part, have become issues of serious contention between the Federal and state governments in Nigeria. On 22 May 2011, the 36 state Governors approached the Nigerian Supreme Court, requesting the Court to use its judicial powers to squash plans by the Federal Government of Nigeria to withdraw $1 billion from the Excess Crude Account to float the planned SWF. The bone of contention surrounds issues of constitutionality, ownership and prudency in the management of the fund. Relying on extant literature, Acts of Parliament as well as commentaries, opinion pieces, editorials and news articles from Nigerian newspapers, this paper examines the controversies that surround the establishment of SWF in Nigeria within the context of the 1999 Constitution (as amended), and assesses the conflict mitigating capacity of the Nigeria’s federalism especially in the light of the nation’s fiscal practices.     

Policy diffusion in subnational governments: State–local relationships in the Brazilian education policy

Intergovernmental relations play a key role in policy diffusion among constituent units. Federal governments have adopted different mechanisms to guarantee minimum standards across the countries, but historical trajectories and widely shared policy ideas are also mentioned as relevant in diffusion processes. This paper focuses on the influence of federalism in policy diffusion at the subnational level in Brazil. The 1988 Constitution consolidated decentralization of the Brazilian education policy but required cooperation between states and municipalities. The lack of a national definition resulted in a great variety of cooperative programmes and coordination arrangements, allowing the identification of similarities and differences among their diffusion processes. This article shows that state governments are the main policy-makers regarding cooperation, which highlights that the role of the federal government does not entirely explain these processes. Nevertheless, policy trajectories and the movement of ideas and people municipalities were keys for policy diffusion.     

Economic crises and the nationalisation of politics

The literature on party system nationalisation has yet to provide a better understanding of the impact of short‐term factors upon the nationalisation of politics. This article helps to fill this literature gap by analysing the effect of economic conditions on party system nationalisation. The argument is that economic crises will decrease levels of nationalisation by amplifying territorial variation in preferences for redistribution, limiting political parties’ capacity to coordinate divergent interests across districts and triggering the emergence of new political forces. Data on 47 countries for the 1960–2011 period confirm this hypothesis and show that lower economic growth during the years prior to the election is associated with a decrease in levels of party system nationalisation in the next election. The result is robust to variation in the specification of the econometric model and to the use of different measures of nationalisation. Results also show that federal institutions increase the impact of economic conditions on the nationalisation of politics, whereas any moderating effect of electoral system proportionality on the economy is not found.     

Understanding the insurgency in Balochistan

The management and incorporation of ethnic identities in Pakistan has historically been far more problematic in Balochistan than other provinces and regions. With the killing in 2006 of Akbar Bugti, a leading political figure who was the head of the Bugti tribe and served as federal minister, chief minister and Governor of Balochistan, the province became politically polarised and has descended into a new cycle of bombings, abductions and murders. The rebellion has resulted in a major security operation pitting the security forces against the Baloch people, attacks against Punjabi settlers and sectarian violence against Hazara Shias that collectively threaten to derail major development projects and increase instability in Pakistan as a whole at a critical juncture. This article examines the insurgency in Balochistan and evaluates various perspectives that have been used to explain the present crisis: external intervention, resistance to social change, resource driven conflict theory, transnationalism and diaspora, and failure to manage difference. After examining the evidence it concludes by arguing that the primary cause for the insurgency in Pakistan is due to poor management of difference.     

‘Land grab’ as development strategy? The political economy of agricultural investment in Ethiopia

This paper examines the domestic political economy of so-called ‘land-grabbing’ in Ethiopia, assessing the motivations of the Ethiopian government, which has strongly promoted foreign agricultural investment. The paper draws on a unique set of federal and regional databases detailing foreign and domestic investments in Ethiopia to analyse the likely role investment will play in the Ethiopian economy and the areas which have been targeted for investment. The analysis identifies increased foreign exchange earnings as the main likely contribution of investment but in doing so highlights concerns for food security in Ethiopia, as the goal of national self-sufficiency has given way to a risky trade-based food security strategy. The paper also argues that the federal government's attempts to direct investment to sparsely-populated lowlands have important implications for the ethnic self-determination that is a key tenet of Ethiopia's federal system.     

‘Obligations of good faith’: on the difficulties of building US-style EU federalism

The sovereign debt crisis has exposed the weaknesses of the regulative and institutional arrangements of the European Monetary Union. A number of American scholars have highlighted that there are lessons on federalism for Europe to learn from the USA. But to what extent can the US model of fiscal federalism be transferred to the European context? Our general assumption is that besides the differences of the historically developed institutions, structures and economic concepts, it is the different logic that has and is driving the two integration processes that would impede such a transfer. Basing the argument on Oates’ theory of two generations of fiscal federalism, we see that the USA – building on a firm constitutional framework – provided for a crucial role of central government in macro-economic stabilization, whereas the European Union (EU) style of fiscal federalism remains contractual. Although transfers are inevitable, the EU shuns the logic of financial solidarity as economic divergencies cannot be harmoniously accommodated by a commitment to a common constitutional framework. As crisis management largely relies on an intergovernmental decision-making process, it enhances the power of creditor states vis-à-vis the debtor states and follows the logic of ‘surveillance and punishment’. The European emphasis is on controlling the moral hazard and the most likely outcome of the crisis will be differentiated integration.