Provincial and Territorial Politics in Canada and Beyond

J09(b) - Exploring Subnational Abdication of Revenue Authority and Fiscal Centralization in Federal Systems

Date: Jun 13 | Time: 08:30am to 10:00am | Location: 680 Sherbrooke St. West 1041

Chair/Président/Présidente : Michael Luoma (Queen's University)

Discussant/Commentateur/Commentatrice : Kyle Hanniman (Queen's University)

Delegative federalism is a mechanism of institutional change that explains the trend of fiscal centralization in many federations. It entails a sequential causal process where, during times of economic crisis, sub-national units in federal states agree to transfer tax authority temporarily to the federal level. This arrangement, then, often and can, become “locked-in”, essentially because the federal government can co-opt fiscally poor units with transfer payments in the aftermath of the crisis. The goal of this panel is to analyse further the conditions under which subnational authorities either delegate, or abdicate, their fiscal authority in federal systems. In some cases, initial delegation may in fact, not lead to abdication, or there may be in fact greater resilience to abdication. To explore the conditions under which delegation and abdication occurs, we present and analyse the cases of Argentina, Australia, Canada, and Germany. We apply a shared typology in our papers that distinguishes between different types of delegation and abdication. Our larger theoretical goal is to explore over the longer term, the impact of subnational abdication on fiscal centralization and its implications more broadly for the politics of federalism.

Delegative Federalism without Centralization? The Case of Joint Decision-Making in Germany: Jörg Broschek (Wilfrid Laurier University)
Abstract: In the context of joint decision-making in Germany, delegative federalism as defined in this panel, never really broke the historical empowerment of the Länder by generating a path dependent, centralizing dynamic. Rather, it reinforced - through a cyclical pattern of dis-entanglement and subsequent re-entanglement - the institutional status quo. This case study demonstrates this dynamic by examining changes to fiscal federalism in four key constitutional reforms. The 1955/1969 fiscal reforms established the shared taxation revenue scheme, and constitutionalized joint decision-making. The three major constitutional reforms since the 1990s sought to partially reverse this historical outcome. Ideational change created pressure for dis-entanglement and decentralization, including taxation competencies. Although the major constitutional reforms of 2006 and, by extension, 2009, resulted in modest dis-entanglement, the 2017 reform reversed this pattern again. Due to the persistence of joint decision-making, German federalism has neither become significantly more centralized nor decentralized over time. The paper argues that ideational and institutional conditions are particularly important to understand this distinct pattern of delegative federalism in Germany.

In Centralization We Trust: Explaining Subnational Fiscal Abdication in Argentina: Jorge Gordin (Hebrew University of Jerusalem)
Abstract: What level of fiscal centralization is compatible with federal self-rule? Studies of the political determinants of federal revenue authority have usually focused on centripetal inducements of national governments but neglected the incentives of subnational orders for assenting to a reversal of their foundational fiscal empowerment. This paper contributes to this debate by analysing the experience of Argentina, a puzzling case of institutionally strong provinces that have consistently shun revenue responsibility. Using a typology of types and ranges of fiscal delegation and abdication, it assesses dynamically the contrasting evolution of the effects of two central milestones of Argentine fiscal federalism, the 1930s revenue-sharing law and the 1990´s fiscal pacts. While in the former case, subnational delegated authority evolved into increasing abdication of tax and borrowing authority, in the latter provinces have shifted erstwhile abdication into more a predictable and formalized federal revenue-burden sharing.

An Asset or a Liability? Explaining the Absence of Subnational Revenue Authority in Australia and its consequences for Federalism.: Tracy Fenwick (Australian National University)
Abstract: Two definitive characteristics about Australian fiscal federalism are well established in the literature. First, Australia, in contrast to other more decentralised federal systems, has a strong vertical fiscal imbalance (VFI)—in this case the Australian Federal Government—collects more revenue than it spends. In both theory and in practice, this structural factor preconditions the states to be fiscally dependent on the centre as they have very limited subnational revenue authority. Second, Australia has one of the most egalitarian horizontal fiscal equalisation systems (HFE) in the world, which has historically reduced intergovernmental fiscal relations to low level grumblings. If we analyse the Australia over time however, and we ask how revenue authority was lost, we observe it was originally delegated to the centre by the states themselves through negotiation or vis-à-vis prescription to expert agencies. Eventually, their revenue authority was almost fully abdicated vis-à-vis unilateral and high-court decisions, and even more recently acquiesce on the part of the states. The central claim of this paper, however, is that economic conditions are necessary, but do not sufficiency explain the extent of fiscal centralization over time. I will suggest using specific examples that the states in fact traded their authority as both an asset and a liability with evident consequences on their ability to self-rule.

No Abdication: The Persistence of Fiscal Decentralization in Canada: André Lecours (University of Ottawa), Daniel Béland (McGill University)
Abstract: Fiscal centralization as a historical process has been the norm in federations, with constituent units often abdicating own-source revenue raising responsibilities. Canada is a notable exception since provinces never abdicated such responsibilities. In fact, aside from a delegation of tax-raising authority during and immediately after the Second World War (the so-called tax rentals), provinces have defended their ability to generate own-source revenues. This paper examines Canada’s experience with regard to the non-abdication by provinces of their taxing responsibilities. Coherent with the contribution of “second generation” fiscal federalism scholars, the paper focuses on the political dynamics of Canadian federalism. More specifically, building on a typology of territorial movements and identities, the paper highlights the importance of nationalism in Québec and sentiments of alienation in Western Canada for explaining the mostly uninterrupted and on-going fiscal strength of Canadian provinces.