Federalism times four.

• Author: Zimmerman, Christopher

In recent years there has been renewed interest in federalism as an intergovernmental system, both internationally and in the United States. American academics and public officials are given to periodic re-examinations of our intergovernmental system. The publication in 1992 of Alice Rivlin's book Reviving the American Dream is one sign that we are in one of those waves. (Rivlin, now deputy budget director for President Clinton, calls for "sorting out" responsibilities among federal and state governments, echoing proposals made a decade earlier by then-President Reagan.)

Foreign interest has been spawned by three factors. First is the onset of European integration, effectively establishing a new federation. A second cause is the breakup of the Soviet Bloc, and the attempt to hold together--with varying degrees of success, so far--many of the constituent countries from Czechoslovakia (unsuccessfully, as it turned otu) to the Russian Federation (time will tell). Third, there has been a growth of interest in many established countries in finding ways to decentralize power and authority, both to improve the efficiency of government and to strengthen national ties by fostering power sharing, in places as diverse as Mexico, Spain and South Africa.

A key to federalism is how fiscal authority is distributed. How are taxing powers distributed within the federal system? How much aid does the national government provide? (Or, how dependent on aid are subnational units of government?) What authority to borrow do state/provincial/local units have? How are major fiscal responsibilities divided? These questions have been given very diverse solutions in different countries, with a wide variation in both the degree of local autonomy and the nature of fiscal decentralization.

Comparing Canada, Germany and Australia to our own form of federalism sheds light on the U.S. system, and also may provide lessons for those who would implement a federal system of government elsewhere.

Fiscal Authority Varies

Assessing fiscal federalism across nations is difficult. To say that power in one country is more centralized than it is in another is not as simple as it may at first seem. Division of responsibilities among levels is similar across countries and so is service delivery. Subnational governments are typically responsible for municipalities, police, schools; national governments provide "social security" of some kind and provide for national defense and foreign affairs; transportation tends to be a shared responsibility; and so on. On the other hand, the division of fiscal authority varies widely. Fiscal power tends to be much more centralized outside the United States, especially in Australia and Germany.

A distinguishing feature of American federalism is the virtually unlimited ability of states to levy taxes at their own discretion on almost any object or activity at any rate they choose. Added to this is the states' ability to borrow. Outside the United States, fiscal federalism tends to mean discretionary power on the expenditure side, not fiscal autonomy.

Nonetheless, in certain respects subnational governments elsewhere have more fiscal discretion than their American counterparts. Some seem to have had less national encroachment on their governing prerogatives than American states. For example, while German Lander, the equivalent of states, have the most limited taxing powers of any of the four, they enjoy the use of substantial unrestricted funds from taxes levied by the German federal government. The Lander (and local governments) are entitled to a fixed share prescribed by law, and so are less subject to coercion through federal grants.

One important difference is that most countries, whether federal or unitary states, place a high priority on fiscal equalization while in the United States redistribution is widely regarded with skepticism. Indeed, transfers from wealthier to poorer regions of this country are pursued almost surreptitiously--through formulas for a few federal grant programs like Medicaid and AFDC.

Equalization is an explicit goal of most federal systems. For instance, the Canadian constitution...