Home  Journals  Financial Analytics: Science and Experience  18(252) - 2015 May

Two generations of fiscal federalism: interconnection within the development process

Vol. 8, Iss. 18, MAY 2015

Article PDF Version

Available online: 21 May 2015

Subject Heading: SCHOLAR DISPUTE

JEL Classification: 

Pages: 42-59

Importance The article explores issues of the first and the second generations of fiscal federalism in foreign economic thought. It carries out a retrospective analysis of proceedings by foreign economists who significantly contributed to the formation of the first generation of fiscal federalism that is based on neoclassical economics, and, particularly, such theories as public choice theory, theory of public finance, economic theory of clubs, Tiebout's theory.
     Objectives The article substantiates the emergence and development of scientific thought on forming the second generation of fiscal federalism within the framework of the new institutional economics and new political economy. The research studies microeconomic theories (theory of the firm, agency, incomplete contracts, transaction cost) that constituted the basis of neo-institutionalism, being laid down into the formation and development of the second generation of federalism.
     Methods The research validates the first and the second generations of fiscal federalism do not compete, but complement each other. The theory of the second generation of fiscal federalism is intended to study and identify incentives, motivation mechanisms that underlie actions of political officials at various levels of public/municipal administration under fiscal decentralization.
     Results We formulate the concepts and provisions, which may be laid down into the construction of the second generation of fiscal federalism (concept of intergovernmental relations, concept of interstate management, the public as the fourth subject of federalism) voiced by foreign scientists. The final part of the research concludes on distinctive characteristics of the first and the second generations of fiscal federalism.
     Conclusions and Relevance The article should compensate for the lack of translated scientific works on the first and the second generation of fiscal federalism in Russia.

Keywords: first generation, fiscal federalism, second generation, decentralization, fiscal policy

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