Second generation fiscal federalism: Theoretical foundations and political proposition

Authors

  • Marcos Spínola Nazareth Universidade Federal de Viçosa
  • Viviani Silva Lírio Universidade Federal de Viçosa

DOI:

https://doi.org/10.4013/pe.2016.121.02

Abstract

This paper aims to present the theoretical background of the second generation fiscal federalism and its main formulation: the imposition of Hard Budget Constraints (HBR) on subnational governments as a sine qua non condition for them to make a “high effort” under the terms of the game shown here. The principal derived propositions are: to implement legislation and reforms in order to free the Union from its role as the guarantor of municipal and state finances and to increase the participation of their own income in the regional budget. If HBR is not implemented, there is a tendency to jeopardize the solvency of public finances and of the stability of the federative pact in the long run.

Keywords: Samaritan’s Dilemma, Hard Budget Constraint, subnational governments.

Author Biographies

Marcos Spínola Nazareth, Universidade Federal de Viçosa

Departamento de Economia Rural

Viviani Silva Lírio, Universidade Federal de Viçosa

Departamento de Economia Rural

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Published

2016-02-25

Issue

Vol. 12 No. 1 (2016): Jan-Jun

Section

Articles

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