Electronic copy available at: http://ssrn.com/abstract=1529322

The Spending Power in Federal Countries

Richard M. BirdSeptember 2009

Abstract

The use of the spending power by the federal government to affect activities not within its normallegislative powers has long been a contentious issue in Canada. Controversy over such federal“intrusions” on state power of course arises in various guises in other federal countries also. .This paper first sets out how the federal spending power appears generally to be understood inCanada, the country in which the issue has been most explicitly discussed under this label. Itthen considers more briefly for four other developed federal countries -- Australia, Germany,Switzerland, and the United States – three questions. First, is any formal equivalent to thespending power explicitly recognized? Second, are there other operationally equivalent ways inwhich the federal government acts to influence outcomes in areas that are constitutionally stateresponsibilities? Third, to what extent is the operation of such federal "intrusions" on areas ofsub-national responsibility institutionally constrained? This discussion shows that more or lessthe same problems arise with the spending power in all federal countries, although it is difficultto make comparisons across countries without considering much more than this single element ofthe complex puzzle that is federalism. The paper concludes that any federal country, developedor not, is likely to achieve better and more sustainable policy outcomes if the issues raised in thisdiscussion are handled in a more transparent and institutionalized manner than is now the case inmost countries.

Keywords: federal-state relations, Canada, United States, Germany, Australia, Switzerland

JEL code: H77

Electronic copy available at: http://ssrn.com/abstract=1529322

The Spending Power in Federal Countries

Richard M. BirdUniversity of Toronto

September 2009

"...In most federations the spending power of each order of government has notbeen limited strictly to the enumerated legislative and administrative jurisdictions.Governments have usually been taken to possess a general spending power. Thus,federal governments have used their general spending power to pursue certainobjectives in areas of state jurisdiction by providing grants to regionalgovernments that otherwise could not afford to provide the services beingdemanded of them (Watts, 1999, 40-41)."

The use of the spending power by the federal government to affect activities not within itsnormal legislative powers has long been a contentious issue in Canada. The point at issue,however, comes up also in other developed federal countries such as the United States andAustralia, as the quotation from Watts (1999) suggests. Federal spending power, like spendingmandates on sub-national governments, can be seen as what Breton (2006, 94) calls an“instrument of occupation” – that is, a way in which governments at one level may effectivelyoccupy the policy domain of governments at a different jurisdictional level.1 The most commonway in which federal governments employ their “spending power” is through an earmarked grant(sometimes called a categorical or specific-purpose grant), defined as any grant for which theamount received is conditional in some way on the spending decisions of the recipientgovernment.2

Controversy over such federal “intrusions” on state power is often most heated when, asin Canada in the mid-1970s, an established system of federal funding is suddenly withdrawn orsharply curtailed. The unpredictability of federal transfers and the difficulties that may ensue forsound financing of state and local programs has been most noted in developing countries (Bird1990), but it is by no means unknown in developed federations like those considered in thispaper.

1 The issues raised by the spending power may also arise in other areas of federal-state relations. For example,federal "mandates" requiring sub-national governments to carry out certain activities and the use of the federalregulatory power that underlies much of the recurrent discussion of "states' rights" in the United States need notinvolve any direct federal spending. However, the present paper for the most part focuses on the spending power.2 Earmarked grants may be further differentiated on the basis of the manner and extent to which they depend onrecipient spending: for example, an open-ended matching (or cost-sharing) grant is an earmarked grant for whichthe amount paid is a fixed share of the amount spent on the assisted category while a categorical block grant is anon-matching grant that is conditional on the recipient government meeting certain conditions with respect to itsspending in the targeted category. One such condition, for instance, might be to spend an amount no less than thegrant received. Many different conditions, and classifications of grants are of course possible, and the effectivenessof such conditional grants in terms of influencing the expenditures of recipients is a much-studied, and controversial,issue: for further discussion, see Smart and Bird (2009). See also Bird and Smart (2002) for a discussion of howsuch grants may be designed to work harmoniously with general-purpose (unconditional) grants such as theequalization transfers in Canada and Australia.

3

Viewed from another perspective, an important issue in the spending power discussion isthe extent to which (and the methods by which) central governments attempt to achieve "nationalstandards" with respect to matters ranging from measures affecting the internal common marketto the nature and type of services delivered in specific functional areas. The importance anddesirability of such standards may be viewed very differently by different people. Whether theaim is to achieve uniform standards or just "minimum" (not less than a certain level) standardsvaries from one country to another. How standards are determined may differ in differentcountries, and the role played by federal spending programs in the implementation andenforcement of such standards may again differ considerably across countries.

Not all these issues can be discussed in this brief paper. My main aim here is simply toexamine briefly how the federal spending power, broadly understood, operates in severaldeveloped federations and the extent to which (and the manner in which) this power isconstrained in principle and practice by explicit or implicit institutional arrangements. The nextsection sets out how the federal spending power appears generally to be understood in Canada,the country in which the issue has been most explicitly discussed under this label. Against thisbackground, the following four sections then consider more briefly for four other developedfederal countries -- Australia, Germany, Switzerland, and the United States -- three basicquestions:

1. Is any formal equivalent to the spending power explicitly recognized?2. Are there other operationally equivalent ways in which the federal government acts to

influence outcomes in areas that are constitutionally provincial responsibilities?3

3. To what extent is the operation of such federal "intrusions" on areas of sub-nationalresponsibility institutionally constrained?

As this discussion shows, although more or less the same problems arise with the spendingpower in all federal countries, it is difficult to make comparisons across countries withoutconsidering much more than this single element of the complex puzzle that is federalism.Nonetheless, after summarizing briefly some lessons from international experience in thedeveloped federal countries, I suggest in the concluding section of the paper that any federalcountry, developed or not, is likely to achieve better and more sustainable policy outcomes if theissues raised in this discussion are handled in a more transparent and institutionalized mannerthan is now the case in most countries.

The Spending Power in Canada

3 The term "province" is often used generically in this paper to refer to the second tier of government ("province" inCanada, "state" in Australia and the United States, "canton" in Switzerland, and "land" in Germany).

4

As the quotation with which this paper begins implies, the term "spending power" isgenerally understood to refer to the power of the federal government to pay money to people orinstitutions for purposes with respect to which the federal parliament does not have the power tolegislate. Although the precise nature and scope of the federal spending power in Canada hasnot been determined judicially -- or, for that matter, in any other way -- discussion of this topichas played an important role in the post-war evolution of Canadian federalism.4

In 1969, for example, an important federal statement explicitly recognized that manyimportant federal programs were based essentially upon this power (Trudeau 1969). Suchprograms include most interpersonal income redistribution programs (other than unemploymentinsurance and old age pensions, for which specific constitutional amendments were introduced),regional development programs, equalization payments to the provinces, grants for health careand other purposes, and various specific projects considered to be of national importance.Despite decades of proposals, counter-proposals, and seemingly endless discussions and debates,the constitutional situation has not basically changed over the last 40 years.

The strongest provincial critiques of the federal spending power over the years have, asmight be expected, come from the province of Québec, whose views have in essence neverwavered from those initially set out in a 1954 provincial report, as follows:

In principle, every federal subsidy...which is granted to an institution falling within theexclusive competence of the provinces affects that institution and constitutes aninterference in its administration. When, for example, the federal Parliament accordssubsidies to the Canadian universities, it is not only disposing of federal property; theprime purpose of such a grant is to assist higher education. Therefore, it is an actionwhich affects education, a field exclusively reserved to provincial legislation. For thesereasons, we believe that the right claimed by the federal government to spend its moneyas it sees fit in the provinces' sphere of activity must be rejected as being unfounded,contrary to the federative principle and to the Canadian Constitution itself (Kwavnick1973, 178).

Criticism of the spending power from other provinces has for the most part focused less on theprinciple than on its practice, with most attention being paid to the manner in which uncheckedfederal use of the spending power may distort provincial policy priorities and introduce anundesirable unpredictability into provincial public finance.

In response to such criticisms, as early as 1969 the federal government proposed thatthree constitutional revisions should be made, as follows (Trudeau 1969, 36):

1. To provide explicitly that the federal government can contribute towards the programs ofprovincial governments;

4 There is a huge relevant literature: see Watts (1999) for references.

5

2. To give unrestricted power to the federal government to make unconditional grants insupport of such programs; and

3. To acknowledge that conditional grants may be made for programs within exclusivelyprovincial jurisdictions provided there is (i) a broad national consensus in favor of anysuch program and (ii) no province would be fiscally penalized for not taking part in anysuch program.

Although these proposals did not go very far in the climate of the day, the second of theseproposed changes was in fact accomplished in part with respect to the equalization program inthe revised 1982 constitution (the Canada Act). Similarly, although no formal recognition wasextended to the operative part of the third proposal, a closely related "contracting-out"mechanism had been introduced in the early 1960s (Dupré 1965). Although this mechanism wasutilized only by Québec at that time, in a sense a related approach subsequently became apermanent part of the federal-provincial fiscal system with the replacement in 1977 of severalopen-ended matching grants by the so-called established programs financing (EPF) arrangementsfor federal financial support of provincial spending on health, post-secondary education andsocial services (Perry 1997).

Subsequently, a proposed constitutional revision (the Meech Lake proposal) went furtherand included a formal amendment permitting the exercise of the federal spending power with an"opt-out" provision for compensation provided that a province carried out a program on its ownthat was "compatible" with national objectives. Later discussion (the Charlottetown Accord)added a requirement for joint federal-provincial determination of just what these "nationalobjectives" might be. Neither of these attempted changes came to pass. However, the issue didnot die: it was soon revived in the context of continuing concern with the increasingly expensivefederal-provincial health financing arrangements and the associated discussion of what wascalled the "social union" (Institute of Intergovernmental Relations 1997). In 1996 the federalgovernment made a commitment not to "…use its spending power to create new shared-costprograms in areas of exclusive provincial jurisdiction without the consent of a majority of theprovinces. Any new program will be designed so that non-participating provinces will becompensated, provided they establish equivalent or comparable initiatives" (Dunn 1997, 16).Despite this declaration, and much further discussion, health financing continues to be a centralissue in the ongoing federal-provincial discussion.5

The discussion is not confined to arcane intergovernmental negotiations. Many Canadiansclearly think that it is right and proper for the federal government to use its spending power tomaintain and establish national standards, particularly in health care. Everyone is afraid ofbecoming ill, more and more are afraid of losing their jobs, some are concerned with lookingafter elderly family members, and most hope to live long enough to become elderly themselves.Health care, employment insurance, and retirement income are thus social policy areas of direct

5 For recent reviews of changes in federal-provincial transfers in Canada, see Smart (2005), Smart and Bird (2007),and Smart (2009).

6

and personal interest to many Canadians, who understandably would like the reassurance of moreor less the same level of provision no matter where in the country they happen to move. Ratheroddly, however -- and contrary to experience in most federal countries – Canadians do not seemto hold similar sentiments with respect to education, perhaps reflecting at least in part somedegree of national consciousness of the clear need to accommodate Québec’s different and veryclear desires in this area.

Of course, other Canadians are more doubtful of the desirability or attainability ofnational standards. One prominent commentator, for example, has argued that, while it may beimportant to have uniform rules applying throughout the country to secure the economic union,this in no way implies that similar uniformity is necessary or desirable with respect to the "socialunion" -- regardless of whether such unity is imposed from above (for example, by use of thespending power) or reached by explicit intergovernmental agreement (Richards 1997). In hisview, the price paid for such unity in terms of the loss of accountability may be simply too highto pay.

Whatever the specifics of the continuing political discussion in Canada – specifics thatvary considerably from decade to decade depending in large part upon whether the federalgovernment has much to spend or not – it is indisputable that "the constitutionally unlimitedscope of the federal power to spend...has proved to be the single most dynamic element ofCanadian federalism (Cameron and Dupre 1983, 340)." Sometimes centralizing and sometimesdecentralizing, sometimes symmetrically and sometimes asymmetrically, Canada's changingeconomic and political realities have, over time, worked around the rigidities of its constitutionalstructure in part through the use of the spending power. This very success in producingflexibility, however, has given rise to further problems. Too often, important policy outcomeshave emerged from closed-door political bargaining by the federal and provincial governments ofthe day, with no clear public accountability for such decisions. As Cameron and Dupré (1983,396) went on to say, if Canada is ever to live more comfortably within its constitutional andpolitical framework, more acceptable "long-term behavioural norms” seem needed t provide “thebedrock of on-going accommodation."

To put this important point another way, in a living federal system what may be moreimportant than what is done is how it is done, and how acceptably and consistently the on-goingprocess of federal and provincial accommodation works. Within such a framework, the federalspending power may play a valuable -- perhaps even essential -- role in enabling a country likeCanada to adapt to changing circumstances. In principle, as discussed further below, there ismuch to be said in favour of increasing the fiscal transparency of federal system both to reduceits responsiveness to passing electoral ambitions (and bureaucratic imperatives) and to increaseits basic political accountability to citizens. In Canada, for example, both transparency andaccountability might be achieved in three quite different ways:

1. By realigning functions and finances to separate out the federal and provincial spheres ofaction more sharply, as some have recommended (Ip and Mintz 1992);

7

2. By recognizing the need and desirability of a more explicit provision for joint federal-provincial (or interprovincial) action (Bird 1987),

3. Or simply by continued ad hoc dispute resolution, which is perhaps how Canadianexperience to date may best be described.

At least in Canada, as Bird and Vaillancourt (2006) discuss in detail, this incremental approachhas, on the whole, so far worked fairly well. What is best, in other words, is what works -- andCanadian reality suggests that holistic solutions are less likely to produce acceptable results thancontinued incremental accommodation to changing circumstances.

Australia

Australia, though a considerably more homogeneous country than Canada, has a basicallysimilar parliamentary structure, with no clear separation between the executive and legislativefunctions. Unlike the fuzziness of the Canadian situation, however, the Australian constitutionexplicitly permits the federal (Commonwealth) government to "grant financial assistance to anyState on such terms and conditions as the Parliament thinks fit."

There could hardly be a clearer statement of the federal spending power than this, so it isnot surprising that Australia's fiscal history is replete with examples of the use of federalspending to impose its policy wishes in areas for which the states are formally responsible,particularly with respect to the social programs that have led the post-war growth of governmentin all developed countries. Since states in Australia are much weaker fiscally than provinces inCanada, one result has been that a number of areas of formal state responsibility have, over theyears, in effect become federal.6 Moreover, in striking contrast to Canada, the spending powerhas been most visibly used with respect to education. Examples include the Australian SchoolsCommission established in 1973, the Australian National Training Authority established in 1992(to improve vocational training), and the long-dominant role of the Commonwealth in financingand controlling post-secondary (tertiary) education (Mathews and Grewal 1997).

Although education and health remain in principle essentially state functions in Australia-- in contrast to social services, which is explicitly a concurrent area -- the current situation isthat, unlike the case in Canada, the federal government has a formal and explicit role with respectto both post-secondary education and hospitals. As in most countries, the tendency over time hasclearly been for the level of government with the money inexorably to expand its authority inconcurrent areas ("he who pays the piper calls the tune") and even, at times, to override statelegislation on certain activities with respect to which the states retain substantial administrativeauthority.

6 For a recent detailed discussion of Australian state finance, see Bird and Smart (2009).

8

Central power in such matters is clearly much greater in Australia than in Canada. LikeCanada, Australia has a general equalization grant system. Unlike Canada, however, it also has avariety of specific purpose transfers for housing, education, and other fields that are essentiallyunder state jurisdiction.7 As noted above, the Constitution specifically empowers theCommonwealth to make such expenditures even in areas that are explicitly state functions. Thefirst such transfer program, for roads, was established in 1923. From the beginning, detailedtechnical and reporting requirements were usually established with respect to specific purposetransfers.

Following the great expansion of central financial dominance in the Second World War,the Commonwealth government gradually extended specific purpose transfers to various otherfields, especially in education and health. By the early 1950s, for example, there were 10 suchgrants for housing and universities among other matters. At the end of the 1950s, however, theseprograms were largely replaced by an altered general grant. In the early 1970s, under a new"activist" government, a variety of new specific grants for activities ranging from child care tourban public transport were introduced, in part with the explicit objective of increasing thedegree of federal control over various activities. Particularly important in this respect was theintroduction of full federal funding of higher education in 1974.

This flurry of new specific grants in the 1970s resulted in the first formal state challengesof the federal spending power, particularly with respect to spending on regional and localdevelopment. A 1975 High Court case arguing that some such payments were unconstitutionalfailed, but the court did not settle the issue of the scope of the spending power. Yet another courtchallenge to the spending power in 1981 produced a similarly inconclusive result. In practice,the continued judicial reaffirmation in a series of cases of the overwhelming taxing power of thecentral government and of the very limited taxing powers of the states reinforced federaldomination (Mathews and Grewal 1997). So long as the states cannot raise much money on theirown, the central government will, almost inevitably, call the financial shots in Australia.

With another change of government at the federal level in the early 1980s, some of thespecific grants, especially those for urban and regional development which had aroused thegreatest state opposition, were replaced by more general arrangements. Others, however,continued to exist. Perhaps the most important change took place in health funding, where thespecific purpose grants were replaced by less tightly-controlled block grants. At the end of the1980s, however, once again yet another new government reversed policy and separated out healthfunding, apparently in part to be able to claim more credit for this always politically popularoutlay.8

7 As Slack (2009) discusses, Canada has many such programs at the provincial-municipal level. However, it hasrelatively few specific purpose transfers at the federal level.8 For a similar argument with respect to federal health spending in Canada, see Lazar (2008). In both countries, whatSearle and Martinez-Vazquez (2007, 411) call federal “public relations conditions” thus appear to have been servedby increasing federal grants for health, even if – as seems likely at least in the case of Canada - the increases had noincremental effects at all on provincial health spending (Smart and Bird 2009).

9

The grants system has continued to evolve. Although a new system of funding generalequalization grants was introduced in 2000 when the federal GST was earmarked for thispurpose, almost half Commonwealth grants to states in Australia are still “specific purposepayments” (SPP). Some such specific transfers now impose only very general requirements;others require that the funds be spent on a very specific purpose; still others impose very detailedconditions as to precisely how the program is to be operated as well as requirements for matchingfunding and for detailed information reporting (Madden 2006). Moreover, as in the UnitedStates (though very unlike Canada), some federal grants to states in Australia are "passedthrough" to other institutions, including educational institutions and local governments. Aboutone-third of specific grants to states in effect simply employ the state as a post box in this way.While there was some "disentanglement" in recent years -- for instance, the federal governmentabolished a specific program for arterial roads in 1993 (while at the same time adding the amountthus saved to the general assistance payments) – as in the U.S. case discussed below it is by nomeans clear that this change represents a trend rather than simply, as with the numerous policyreversals mentioned earlier, a passing fancy.

The federal spending power in Australia is thus alive, constitutionally entrenched, andactively employed in a variety of areas in order to shape state policies. Some years ago, aCanadian commentator said that "the conditions attached to specific purpose grants in Australiagive the Commonwealth government great power in many State fields. There is nothingcomparable in Canada; there could not be (Robertson 1982, 195)." The reason is because, whileAustralia and Canada have some important similarities -- such as the ineffectiveness of theSenate in representing state interests compared to countries like Germany and the United States -- they are also very different in many ways. There is, for example, no parallel in Canada to theimportant role played by the Australian Loan Council in regulating and controlling stateborrowing.9 There is also no parallel to the critical role played by the Commonwealth GrantsCommission (Rye and Searle 1996). This body has undoubtedly served a useful function in"depoliticizing" some of the discussion about the distribution of federal grants. Unfortunately, ithas done this in part at least by making the process so complex and academic that it sometimesseems that no one can quite understand it (Bird 1986). Nonetheless, the role of the GrantsCommission in allocating the funds from the federal GST that now finance most grants to statesin Australia is widely accepted and perhaps deserves a closer look and even emulation in otherfederal countries.

Germany

Although Germany, like Australia, is a rather homogeneous country, the German modelof federalism as established after the Second World War is fundamentally different from that inAustralia (or Canada) in a number of important respects. Although there is a general

9 On the very different system in Canada, see Bird and Tassonyi (2003).

10

constitutional presumption of state (länder) power unless specific legislative power is given tothe federation, in practice "state sovereignty has been eroded continuously by the transfer ofpowers to the Federation through constitutional amendments, while the decisions and policypriorities of Federal institutions have significantly influenced government decisions andlegislation at the State level (Spahn, 1978, 10)." Moreover, under the constitutional device of"concurrent sovereignty," in many areas states have the right to legislate only if the federalgovernment has not done so. In practice, federal legislation overrides state legislation if thefederal parliament determines either that the states cannot act effectively for themselves, or thatthe action of one state might impinge adversely on other states, or that action is needed tomaintain economic unity and the "uniformity of living conditions" throughout the country.

In addition to the long constitutional list of concurrent powers, a 1969 amendment to theconstitution specified several areas of explicit "joint" responsibility. With respect to these areas,the federal government sets guidelines in the form of framework legislation and the states thenimplement these guidelines through their own legislation. Such "joint tasks" are specified withrespect to university construction, educational planning, research, regional policy, andagricultural policy. Decisions with respect to joint tasks are taken by joint federal-state planningcouncils and are co-financed by the federal government.

More generally, state (and local) governments are charged with implementing many ofthe policies of the central government--often, but not always, on a cost-reimbursed basis. Theconstitution (the Basic Law) explicitly provides that "where the Länder act as agents of theFederation, the Federation shall meet the resulting expenditure" but goes on immediately to saythat "Federal laws to be executed by the Länder and involving the disbursement of funds may[emphasis added] provide that such funds shall be contributed wholly or in part by theFederation....Where any such law provides that the Länder shall meet one quarter of theexpenditure or more, it shall require the consent of the Bundesrat."10 Nonetheless, some federallegislation establishes what Americans would call an “unfunded mandate,” explicitly requiringlower-tier governments to finance some functions out of their own resources withoutcompensation (Spahn and Fottinger 1997). In addition, the federal government is explicitlyempowered not only to establish an interstate equalization system and but generally to make suchsupplementary grants as it sees fit.

In the early post-war years, there was considerable discussion in Germany of theproblems arising from federal spending, particularly in the form of conditional grants, in areasconstitutionally assigned to state (and local) governments. As Reissert (1978, 26) notes: "It wasargued that Federal grants for specific Länder functions were violating the Basic Law; that, byadministering these programs, the Federal government became more and more involved in Stateadministrative functions, and that specific Federal grants (some of them combined with matchingrequirements) distorted spending preferences at the State level." For the most part, however,these issues were resolved by the 1969 constitutional reform mentioned earlier. In addition to

10 As discussed below, the Bundesrat is the second chamber of the federal legislature.

11

creating the "joint tasks" noted above (thus legitimating federal involvement in these fields), the"cooperative federalism" that characterized this reform explicitly permitted federal grants-in-aidwithin certain policy areas to be defined either by federal law or by federal state-agreements.11

The constitution explicitly stipulates that such grants may be used to equalize regionaldisparities, to stimulate growth, and for stabilization purposes. This provision has beenimportant in recent years as the reunification of Germany has made such special-purposepayments to states more important than had formerly been the case (Spahn and Werner 2007).

Since proportional representation frequently results in coalition governments inGermany,, a considerable degree of political cooperation across parties is usually required forlegislation. Moreover, the German equivalent of the Senate (the Bundesrat) explicitly representsthe interests of the states. Its members are directly appointed by state governments and requiredto vote in accordance with their instructions. What this means is that to obtain the consent of theBundesrat to federal laws the states -- or at least most of them -- must agree, for example, whenit comes to implementing "national standards." Indeed, every federal law affecting state interestsmust be approved by the Bundesrat. It comes as no surprise to learn that "regional issues rankhigh on the agenda...." of this body (Spahn and Fottinger 1997, 243).

The roots of this "Council of States" lie deep in German history (Kaltefleiter 1980).Nonetheless, given the extent to which legislative powers have been centralized in Germany overthe years and the apparently overriding concern with the strong form of the national standardsapproach (the "uniformity of living conditions" in the constitution), this formal role of the statesin the federal legislative process remains perhaps the key "federal" feature of modern-dayGermany. In many ways Germany is a rather unitary country -- for example, in theconstitutionally-mandated stress on the uniformity of living conditions throughout the nation andthe high degree of policy coordination among the different tiers of government. Nonetheless,both formally and in practice Germany operates as a federal state. Indeed, it is in many ways thevery model of co-operative federalism, sustained by a high degree of interstate equalization andthe key role of the Bundesrat. The other side of this picture, however, is that such thorough-going cooperation both suppresses any possible advantages that might arise from more opencompetition among governments (Breton 1996) and, as in most federations, results in unclearand confused lines of accountability.

Switzerland

Switzerland may perhaps be characterized as being somewhat like Canada in terms oflinguistic diversity, somewhat like the United States in terms of its relative lack of concern forequalization or national standards, and somewhat like Germany in terms of the "interlocked"

11 An important issue not discussed in this paper is the desirability or otherwise of ‘asymmetrical’ arrangements –that is, different agreements for different regions: this issue is discussed extensively in Bird and Ebel (2007). For arelated discussion with respect to a non-federal Latin American country, see Bird and Fiszbein (1998).

12

nature of its political institutions, including the concurrent assignment of some powers and theadministration by the cantons of various federal laws.

Like Germany, Switzerland has specific constitutional provisions relating to the use of thefederal spending power. In addition to encouraging financial equalization among the cantons, thefederal government (the Confederation) can in general act "for the welfare of the people and theeconomic security of the citizens." Importantly, however, it can do so only after both (1)formally consulting the cantons and (2) securing approval in a referendum. The power of thefederal government is thus substantially more limited in Switzerland than in most federations,both constitutionally and in practical political terms.

In a pattern that indeed seems to crop up in many federations, "the extensive network ofpayments, subsidies, incentives, joint financing, and delegation of competences that has evolvedover the years tends to blur the identification of spending authorities, as well as theiraccountability (Spahn 1997, 327)." Although Switzerland is by no means as dedicated toequalization as Germany, all of this interlocked activity results in a considerable degree ofequalization taking place, even though most intergovernmental transfers take the form ofconditional matching grants.12

Agreements between governments at the same level are particularly well developed inSwitzerland. Indeed, at times such voluntary agreements between cantons have been explicitlyused to defeat federal attempts to impose national standards, for example, with respect toeducation. On the other hand, despite the specificity and rigidity of the Swiss constitution, overthe years the cantons have agreed to federal assumption of a number of redistributive programs,including (as also happened in Australia and Canada) unemployment insurance.

As in Germany, the second chamber of the federal parliament in Switzerland is a Councilof States (although, in contrast to Germany, its members are directly elected). Switzerland hasrelatively few other formal federal-cantonal bodies, but in a sense it does not need them, since along-established theme in Swiss history is that "Switzerland will be federal or altogether cease tobe (Frenkel, 1986, 155." The way Swiss government works in practice results in a high degree ofconsensus being achieved before any federal action is taken. The combination of a very detailedconstitution, frequent recourse to direct referenda, the federal structure of the country, and thenature of the political system -- which emphasizes compromise and consensus to the point ofrequiring a multi-party "committee" presidency, with different members taking one-year terms atthe top job -- might seem to reduce the capacity of the system to adjust to change. However,Switzerland’s endless coalitions both accommodate conflicts among interests and controlpolitical decision making. The result is that the Swiss have, over the years, introduced numerousimportant changes in Confederation-canton fiscal relations through their very active use of

12For a recent detailed discussion of intergovernmental finance in Switzerland, see Dafflon (2007).

13

"direct democracy."13 As Kenneth Wheare (1963, 210) once said, "If the Swiss Constitution isrigid, the Swiss people are flexible."

The United States

Australia and Germany, like Canada, have a parliamentary system, and Switzerland, likeCanada, has heterogeneous language groups clustered in its constituent units.14 However, theUnited States, like the Latin American federations, shares neither of these critical features.15 InCanada the so-called “Fathers of Confederation” in 1867 clearly did not foresee that the spendingpressures a century later would come at the provincial level. The future was equally difficult forthose who drew up the American Constitution in 1789 to foresee. It is thus hardly surprising thatthe United States, like every federation, has over the years seen many swings in the federal-statefiscal balance, and many different attempts to accommodate changing economic realities to(supposedly) unchanging constitutional virtues.

Although the spending power as such has been little discussed in the U.S. context --perhaps because the constitution explicitly gives Congress power to spend any way it wishes("for the general welfare of the United States") -- there has been much discussion over the yearsof the need to take more explicit account of the impact of federal actions on state responsibilities.Advocates of "states' rights" in the United States have, for example, often deplored the use of thefederal "power of the purse" to influence policy in matters that are explicitly under statejurisdiction. The result, in the words of the Advisory Commission on IntergovernmentalRelations (1980, 1), is that over the years"the federal government's influence...has become morepervasive, more intrusive, more unmanageable, more ineffective, more costly, and, above all,more unaccountable."

Such influence may be positive or negative -- the "carrot" or the "stick." An example ofemploying the spending power negatively was the use some years ago of reductions in federalhighway grants as a penalty to induce states to lower their speed limits. More commonly,“carrots” are used in the form of "categorical" grants intended to influence and direct statespending. One aim of such categorical grants is often to impose federal mandates and to ensureminimum national standards. In 1996, a particularly detailed federal welfare grant called the Aidto Families with Dependent Children was replaced by a block grant which basically gave thesame amount of money to states but allowed them to set their own eligibility standards withincertain limits. Some observers at the time called this a "watershed" in intergovernmental fiscalrelations in the United States (Stotsky and Sunley 1997, 380). Subsequently, however, as past

13Of course, given the detailed rigidity of the Swiss constitution -- which, for examples, specifies the income tax ratestructure -- more such changes are needed than in most other federations.14 Belgium, a very new (and peculiar) federation carries ‘language politics’ to new heights (or depths): for a recentdiscussion, see Bayonet and de Bruycker (2007).15 See Diaz-Cayeros (2006) for a recent interesting comparative treatment of the evolution of fiscal federalism in thefour Latin American federations – Argentina, Brazil, Mexico and (formally at least) Venezuela.

14

history suggested would be the case, this move turned out to be less a watershed that just anotherturn of the intergovernmental wheel.16

Apart from grants and its virtually unlimited power to spend on state and local matters,the federal government may also ‘preempt’ state action since federal legislation in any concurrentfield always prevails over existing or conflicting state legislation. Yet another commonintrusion of federal power into state jurisdiction that has been much discussed in the UnitedStates is "mandating" -- the explicit requirement that a state (or local) government must make aparticular expenditure out of its own funds. Such mandates may be imposed by the federalgovernment (or by the judicial system). In some instances, such mandates may make economicsense, for instance when they in effect require governments to take into account the consequencesof their actions, or inactions (for example, in sewage treatment) for the residents of otherjurisdictions. On the whole, however, this practice raises serious problems of accountability andtransparency because the government making the expenditure decision is not responsible forfinding the funds to carry it out. Such mandates may thus at times in effect impose high taxes onsome people for the (alleged) benefit of others.

Lessons from International Experience

Without spending power, no federal government would have much fiscal flexibility.Reasonable policies for any federal government include such matters as the maintenance (ordevelopment) of an internal common market and the attainment of certain social policy aims, forexample, with respect to distribution. Inevitably, a certain degree of "intrusion" on someprovincial constitutional powers is likely to occur in any federal country.

Broadly, there are only two ways to avoid such conflict: (1) separation or (2) co-operation. Logically, for example, it might seem that the level of government with the greatestsocial expenditure responsibilities, the provinces, should have the greatest share of tax revenuesto finance them. Canada stands out as the federation with the greatest “co-occupancy” of taxbases by federal and provincial governments. In the US, for example, the federal government hasno sales tax, and in Switzerland, only the federal government has a sales tax. In most otherfederations, specific taxes (or specific shares of specific taxes) are clearly assigned to each levelof government, although there are still obvious overlaps as with the provincial sales taxes inArgentina and the federal VAT, the state and federal VATs in Brazil, and even the local businesstax and the corporate income tax in Germany.17 Whatever the degree of tax overlapping orseparation, in the end all federations face similar problems. Federal fiscal flows inevitably, andoften intentionally, alter provincial priorities in all federations. Provinces may not have to takethe money, but realistically, they cannot, in the interests of their residents, refuse--unless they

16 The case for ‘earmarked grants’ has recently been reviewed in light of what has been called ‘second-generationfiscal federalism theory’ (Oates 2005) by Smart and Bird (2009), but this issue is not discussed further here17 For a brief discussion of intergovernmental tax overlapping in general and in five large emerging countries –Brazil, China, India, Nigeria, and Russia – in particular, see Bird (2009).

15

have the equivalent to a compensated "contracting-out" option. All federal states have similarproblems.

Among the countries compared here, Canada stands out for the lack of any formal publicinstitutional framework for institutionalizing the process of meshing legitimate federal andlegitimate provincial interests. In effect, because of their shared tax powers the federal andprovincial governments de facto also have shared expenditure powers. However, there is noformal way in which this interdependence is currently taken explicitly into account in federalspending decisions. The relative revenue independence of the more important provinces maywell be one reason that relatively few such federal decisions impact directly on provincialspending; on the other hand, it may also be one reason why there is so much argument aboutthose that do.

In contrast, in Germany not only are there concurrent and joint functions, there are alsoformal political requirements for provincial consent. In Switzerland the detailed rigidity of theconstitution and the need for direct citizen approval through referenda similarly ensure a highdegree of intergovernmental co-operation -- albeit in part by reducing the "flexibility" of alllevels of government. In the exceptionally open and fragmented political structure of the UnitedStates, although regional interests are much more strongly represented at the central level, thefederal government nonetheless has much more freedom in exercising its spending (andregulatory) power than in Canada. In the last resort, however, the judicial system plays a criticalrole in the United States as a referee (and sometimes advocate) of federal intrusions into statespheres. Finally, in Australia the federal government to a considerable extent can do more or lesswhat it wants, since it is subject to fewer checks at either the legislative or judicial levels than inthe United States.

On the whole, despite the frequency with which complaints about the misuse of thefederal spending power are heard in Canada, it seems likely that Canada's federal governmentprobably interferes less in provincial affairs than is the case in any of the other countriesconsidered here. However, this is by no means the whole or the most important story. In all theother countries considered here -- with the exception perhaps of Australia – such federal“interference” as a rule results from a process that requires much more effort at prior consensus-building than is the case in Canada and thus in one way or another involves subnational interestsmore actively in the process. To put the point another way, even though the spending power maybe less used in Canada than in other federations the lack of ex ante discussion of the use of thespending power in Canada may have led to increased ex post argument about its possible misuse.

Process thus seems to be the key issue separating international experience with thespending power--not what is done, but how it is done. Three distinct levels of process may beconsidered: (1) policy formulation, (2) implementation, (3) dispute resolution.

Policy formulation in Canada, Australia, and the United States is clearly in the hands ofthe federal government, checked only by public opinion and the broad constitutional power of the

16

(federally-appointed) judiciary in all. In the case of the United States, it is also constrained tosome extent both the greater "localism" of federal politics and a more interventionist judiciary.In contrast, Germany and Switzerland are much more constrained to secure the formal approvalof state governments and, in the case of the latter, even that of citizens, before legitimatingfederal intervention in state affairs.

Policy implementation in all the developed federal countries is basically in the hands ofstate (or local) governments. Germany carries this furthest, with state governmentsimplementing most federal policies as well as their own. Although the Swiss system is quitedifferent, virtually all government policies directly affecting the lives of citizens are alsoimplemented by subnational governments, no matter who pays for them or how they weredecided. Even in the countries with much more independent central governments -- Australia, theUnited States, and Canada -- most public services are in practice delivered by subnational levelsof government. The principal questions that arise in connection with policy implementation in allcountries concern the extent to which provincial actions are subject to monitoring and whetherprovinces can "opt out" (with or without compensation). Among the three countries justmentioned, the federal government in Canada seems to be the least interventionist.

No federal country has any formal dispute resolution mechanisms other than the courts.In practice, however, the issue is not likely to arise in any serious way in the two Europeanfederations considered here owing to the highly "interlocked" way in which most federal-statepolicy decisions are made in the first place. In the context of the United States, which hasgenerally been content to leave the many disputes that arise up to the courts to resolve, somehave suggested that it would be useful to require more explicit ex ante consideration of the"federalism" impacts of federal measures rather than simply leaving dispute resolution up to expost judicial decision (Inman and Rubenfeld 1997). Although the focus is very different, thisproposal calls to mind the long Australian history of leaving some (but by no means all) criticalaspects of federal-state fiscal relations up to the decision of an explicitly non-political (althoughfederally-appointed) expert commission, the Commonwealth Grants Commission. In both cases,the essential idea is to introduce more prior consideration of federalism issues in order to reduceex post arguments.

Conclusion

International experience in developed federal countries appears to suggest that one maydeal with at least some spending power issues either "up front" through explicit political(Germany, Switzerland) or expert (Australia) bodies or after the fact through the judicial system(the United States). In contrast, Canada appears to follow what may be called a "closed-door"version of the political-expert route (through endless intergovernmental meetings). The resultinglack of transparency thoroughly confuses accountability and responsibility.

17

Fiscal transparency is fundamental to sound public policy in any country. Ideally, publicsector accounts should be comprehensive, comprehensible, and widely available. Budgets shouldbe drawn up to display the real status of the public finances and should in principle depict thelong-run implications for taxation of current spending decisions. In general, the more open andtransparent the public policy process is, the more likely policy decisions are to be grounded infact rather than fantasy--and, presumably, the more closely policy outcomes should coincide withstated policy intentions.

All this is well accepted in theory, and increasingly supported by empirical studies andexperience (Kopits and Craig 1998; Hellerberg, Strauch and von Hagen 2009). Nonetheless,fiscal transparency is inherently difficult to achieve in any country, federal or not. Politicians andofficials often have overwhelming incentives to hide taxes and liabilities, to exaggerate benefits,and generally to present fiscal realities in as complex and confusing a way as possible in order topresent a more acceptable public face. The quiet life available to those who can exert monopolycontrol over information that might be used to make them accountable for their actions (or lackof action) is always attractive to those in power.

The need for transparency, and informed public input, is especially great in federations, inwhich the responsibility for governance is divided between two (or more) tiers or levels ofgovernment. Citizens in such countries need to understand exactly who is responsible forprecisely what if they are to hold governments accountable through the electoral process (or inother ways). Moreover, it is critically important that each level of government is well informedof the intentions, actions, and outcomes of the other levels.

The key to effective accountability, and hence to good governance, in a decentralizedpolity is to make relevant information publicly available in a comprehensive and comparableform. Uncomfortable though the lives of politicians and officials may sometimes be when theiractions are open to public scrutiny, within limits the more that is known, and the more publicly itis known, the better policy outcomes are likely to be.18 More specifically, in a federal setting,sustainable policy decisions at all levels of government require not only that the rules of thefederalist game be clear but also that all players have access to broadly the same fiscal andfinancial information base (Bird 2000).

For these reasons, democratic federal countries have – albeit inevitably imperfectly --generally developed institutions that serve on the one hand to integrate to some extent the fiscaldecisions of central and provincial governments and on the other hand to provide the informedpublic with some useful and trustworthy (non-partisan) information on what both levels ofgovernment are doing, separately and together. Perhaps the main lesson from internationalexperience is that each country has dealt with such issues in its own unique way, reflecting its

18 There may be an important distinction between what we "need to know" (in order to make the system work properly)and what might, in an ideal academic world, be "nice to know." Nonetheless, although a certain degree of ambiguity andobscurity is perhaps necessary to the effective functioning of any political institution, it seems essential to democracy tomake the system as transparent and accountable as possible.

18

unique history and circumstances. The problems may be universal but the solutions mustinevitably be local.

Some countries epitomize what has been called "interlocked" federalism in which,broadly speaking, no level of government can do anything important without securing the explicitagreement of the other level. In Germany, for example, the Bundesrat represents the stategovernments, and its approval is needed for central legislation. Other important governmentalfunctions are either explicitly or implicitly "joint" federal-state activities and depend upon theactive co-operation of both levels in terms of both finances and operations. On the whole,Germany thus deals with the "integrating" function--ensuring that the political and bureaucraticplayers at each level are singing from the same sheet--through formal constitutional and politicalinstitutions. Switzerland achieves somewhat similar results in a totally different way, partlyowing to the nature of its political party system and the "committee" presidency and partlythrough the workings of its very detailed constitution and the important role of direct democracyin revising the constitution.

No such formal integrating mechanisms exist in the very different context of the UnitedStates. The aim of the original framers of the constitution in that country was essentially to avoidundue concentration of power. The political institutions they established, combined with thescale and scope of the country, result in an extremely fragmented political-bureaucratic-judicialsystem. Nonetheless, the United States seems to be bound together both by the dominance of the(relatively less fragmented) federal government in many spheres and by a strongly unifyingnational culture. In Australia too, the basic homogeneity of the country and the overwhelmingfiscal strength of the federal government have proven to be strong integrating forces.

In contrast, Canada has none of these mechanisms or forces on its side. There are fewunifying interlocking institutions (formal or informal), and there is neither homogeneity nor aunifying national myth. Canada is thus likely in the future as in the past to continue to "muddlealong", solving problem after problem in an essentially ad hoc fashion. When life is complex,interests are divergent, and the policy environment is uncertain and changing, this may be asensible approach.19 As Babcock and Lowenstein (1997, 122) put it: "...there are many problemsthat people are unable to solve in the abstract, but are able to solve when placed in a real-worldcontext.” Canada’s surprising success in operating its federal system over the last 140 yearsillustrates the importance – at least in its setting – of focusing on specific solutions to specificproblems rather than fruitless debates about principles.

One result, however, in Canada – as indeed in most federal countries – has been thedevelopment over time of a complex and unclear federal-provincial fiscal system. Transparencyand accountability clearly fall far short of any normative ideal in all federations. One way torestore a modicum of accountability to such systems might perhaps be to establish some form of

19 For diverse arguments that support this approach to policy, see, for example, Lindblom (1960), Popper (1957), andSimon (1957).

19

formal "non-political" expert group in the area of intergovernmental fiscal relations: call it theFederal Finance Commission (FFC) for short. One possible role for such a body might be simplyto make an annual or periodic public report on "The State of the Federation." Another might be(as in Australia) to determine (or perhaps only comment on) the appropriate basis for majorintergovernmental fiscal transfer. Yet another might be to provide "federalism impactstatements" with respect to impending federal (and possibly also provincial) legislation (Inmanand Rubenfeld 1997).

From some perspectives, work along these lines might prove to be more credible anduseful in terms of educating people -- and hence, in the long run, influencing governmentactions— if the FFC did not have a formal "reporting" role to the federal government, providedthat (1) its work were accepted as that of competent and politically neutral analysts and (2) thatgovernments were required to formally respond to its reports. For example, monitoring andreporting on the impacts of possibly intrusive federal policies on provincial governments may bemore credible if the FFC is seen not as one of the players in the political game but more as anoutside, but well-informed and trustworthy, referee. The same might be true of its work ontransfer system evaluation.

Of course, all this may seem hopelessly idealistic in the day-to-day context of federal-provincial politics in most countries. The extent to which such objectives may be achieved willinevitably depend to a considerable extent both on the wishes of those now in power in thevarious governments and on the changing nature of the problems facing the country and itsregions. Whatever the practicalities of this particular suggestion, however, in all federations thereis much to be said for pursuing more formal "up front" agreements between governments beforeunilateral decisions are made that affect the interests of both. In many ways, like the details offederal-provincial agreements themselves, the details of exactly how such agreements arereached is perhaps less critical to the sustained viability of a federal political system than thebasic fact that such a process takes place.

20

References

Advisory Commission on Intergovernmental Relations (1980) The Federal Role in the FederalSystem: The Dynamics of Growth (Washington).

Babcock, Linda and George Lowenstein (1997) "Explaining Bargaining Impasse: The Role of Self-Serving Biases," Journal of Economic Perspectives, 11 (1997): 109-26.

Bayenet, Benoit and Philippe de Bruycker (2007) “Belgium: A Unique Evolving Federalism” inRichard M. Bird and Robert D. Ebel, eds. (2007) Fiscal Fragmentation in DecentralizedCountries: Subsidiarity, Solidarity, and Asymmetry (Cheltenham, UK and Northampton MA:Edward Elgar), pp. 169-207.

Bird, Richard M. (1986) Federal Finance in Comparative Perspective (Toronto: Canadian TaxFoundation, 1986).

Bird, Richard M. (1987) "Federal-Provincial Transfers in Canada: Retrospect and Prospect,"Canadian Tax Journal, 35 (1): 118-33.

Bird, Richard M. (1990) "Intergovernmental Finance and Local Taxation in Developing Countries:Some Basic Considerations for Reformers," Public Administration and Development, 10: 277-88.

Bird, Richard M. (2000) “Fiscal Decentralization and Competitive Governments,” in G. Galeotti,P. Salmon, and R. Wintrobe, eds., Competition and Structure: The Political Economy ofCollective Decisions. Essays in Honor of Albert Breton (Cambridge: Cambridge UniversityPress), pp. 129-49.

Bird, Richard M. (2009) “Tax Assignment Revisited” in John Head and Richard Krever, eds.,Tax Reform in the 21st Century (New York: Wolters Kluwer), pp. 441-70.

Bird, Richard M. and Robert D. Ebel, eds. (2007) Fiscal Fragmentation in DecentralizedCountries: Subsidiarity, Solidarity, and Asymmetry (Cheltenham, UK and Northampton MA:Edward Elgar).

Bird, Richard M. and Ariel Fiszbein (1998) “Colombia: The Central Role of the CentralGovernment in Fiscal Decentralization,” in Richard M. Bird and François Vaillancourt. eds.,Fiscal Decentralization in Developing Countries (Cambridge: Cambridge University Press),pp.172-205.

Bird, Richard M and Michael Smart (2002) “Intergovernmental Fiscal Transfers: Lessons fromInternational Experience,” World Development, 30 (6): 899-912.

Bird, Richard M and Michael Smart (2009) “Assigning State Taxes in a Federal Country: The

21

Case of Australia,” Conference on Tax Policy, Melbourne, June.

Bird, Richard M. and Almos Tassonyi (1983) Constraining Subnational Fiscal Behavior inCanada : Different Approaches, Similar Results ?” in Jonathan A. Rodden, Gunnar S. Eskeland,and Jennie Litvack, eds., Fiscal Decentralization and the Challenge of Hard Budget Constraints(Cambridge, MA: MIT Press, 2003), pp. 85-132.

Bird, Richard M. and François Vaillancourt (2006) “Changing With the Times: Success, Failureand Inertia in Canadian Federal Arrangements, 1945-2002,” in Jessica S. Wallack and T.N.Srinivasan, eds., Federalism and Economic Reform: International Perspectives ( Cambridge:Cambridge University Press), pp. 189-248.

Breton, Albert (2006) “Modelling Vertical Competition,” in E.Ahmad and G. Brosio, eds.,Handbook of Fiscal Federalism (Cheltenham UK: Edward Elgar).

Cameron, David J. and J. Stefan Dupré (1983) "The Financial Framework of Income Distributionand Social Services," in Stanley M. Beck and Ivan Bernier, eds., Canada and the New Constitution:The Unfinished Agenda (Montreal: Institute for Research on Public Policy).

Dafflon, Bernard (2007) “Accommodating Asymmetry through Pragratism: An Overview of SwissFiscal Federalism,” in Richard M. Bird and Robert D. Ebel, eds. (2007) Fiscal Fragmentation inDecentralized Countries: Subsidiarity, Solidarity, and Asymmetry (Cheltenham, UK andNorthampton MA: Edward Elgar). pp. 114-65.

Diaz-Cayeros, Alberto (2006) Federalism, Fiscal Authority, and Centralization in Latin America(New York: Cambridge University Press).

Dunn, Christopher (1997) "Should the Federal Spending Power be Constitutionalized? SomeReflections of the Constitutional Reform Industry; or, A Funny Thing Happened on the Way to theMillenium," Paper presented to Symposium in Honour of J. Stefan Dupré, University of Toronto,October.

Dupré, J. Stefan (1965) "'Contracting Out': A Funny Thing Happened on the Way to theCentennial," in Canadian Tax Foundation, Report of Proceedings of the Eighteenth Annual TaxConference (Toronto, 1965), pp. 209-18.

Frenkel, Max (1986) Federal Theory (Canberra: Centre for Research on Federal FinancialRelations, Australian National University).

Hellerberg, M., R. Strauch, and J. von Hagen (2009) Fiscal Governance in Europe (CambridgeUniversity Press).

Inman, Robert P. and Daniel L. Rubenfeld, "Making Sense of the Antitrust State-Action

22

Doctrine. Balancing Political Participation and Economic Efficiency in Regulatory Federalism,"Texas Law Review, 75 (6): 1203-1300.

Institute of Intergovernmental Relations (1997) Assessing Access: Towards a New Social Union(Kingston: Queen's University).

Ip, Irene K. and Jack M. Mintz (1992) Dividing the Spoils: The Federal-Provincial Allocation ofTaxing Powers (Toronto: C.D. Howe Institute)

Kaltefleiter, Werner (1980) "The Political Principles of German Federalism," in R.L. Mathews, ed.,Federalism in Australia and the Federal Republic of Germany: A Comparative Study (Canberra:Australian National University Press).

Kopits, George and Jon Craig (1998) Transparency in Government Operations (Washington:International Monetary Fund).

Kwavnick, David, ed. (1973) The Tremblay Report (Toronto: McClelland and Stewart).

Lazar, Harvey (2008) Displacement in Federal Transfer Payments: Exploring Concept andPractice With Special Reference to the Canada Millennium Scholarship Foundation (Montreal:Canadian Millenium Scholarship Foundation)

Lindblom, Charles (1960) The Policy-Making Process (Englewood Cliffs, N.J.: Prentice-Hall).

Madden, John R. (2006) “Australia: Central fiscal Dominance, Collaborative Federalism, andEconomic Reform,” in Jessica S. Wallack and T.N. Srinivasan, eds., Federalism and EconomicReform: International Perspectives ( Cambridge: Cambridge University Press), pp. 85-142.

Mathews, Russell and Bhajan Grewal (1997) The Public Sector in Jeopardy: Australian FiscalFederalism from Whitlam to Keating (Melbourne: Centre for Strategic Economic Studies, VictoriaUniversity, 1997).

Oates, Wallace (2005) “Towards a Second Generation Theory of Fiscal Federalism,”International Tax and Public Finance 12, 149-373.

Perry, David B. (1997) Financing the Canadian Federation, 1867-1995: Setting the Stage forChange (Toronto: Canadian Tax Foundation).

Popper, Karl (1957) The Poverty of Historicism (London: Routledge and Kegan Paul).

Reissert, Bernd (1978) "Responsibility Sharing and Joint Tasks in West German Federalism", in P.Bernd Spahn, ed., Principles of Federal Policy Co-ordination in the Federal Republic of Germany:Basic Issues and Annotated Legislation (Canberra: Centre for Research on Federal Financial

23

Relations, Australian National University).

Richards, John (1997) Retooling the Welfare State: What's Right, What's Wrong, What's to be Done(Toronto: C.D. Howe Institute).

Robertson, Gordon (1982) "Intergovernmental Financial Relationships in Canada and Australia,",in Russell Mathews, ed., Public Policies in Two Federal Countries: Canada and Australia(Canberra: Centre for Research on Federal Financial Relations, Australian National University).

Rye, C. Richard and Bob Searle (1996) "The Fiscal Transfer System in Australia," in EhtishamAhmad, ed., Financing Decentralized Expenditures: An International Comparison of Grants(Cheltenham: Edward Elgar, 1996), pp. 144-83.

Searle, Bob and Jorge Martinez-Vazquez (2007) “The Nature and Functions of Tied Grants,” inJorge Martinez-Vazquez and Bob Searle, eds., Fiscal Equalization: Challenges in the Design ofIntergovernmental Transfers (Springer).

Simon, Herbert (1957) Administrative Behavior (2nd ed; New York: The Free Press).

Slack, Enid (2009) “Provincial-Local Fiscal Transfers in Canada: Provincial Control Trumps LocalAccountability,” Paper for Conference on Policies of Grants to Sub-central Governments: LocalAccountability or Control? Copenhagen, September

Smart, M. (2005) “Federal Transfers: Principles, Practice, and Prospects,” C.D. Howe InstituteWorking Paper, September.

Smart, M. (2009) “The Evolution of Federal Transfers since the O’Brien Report,” Paperpresented at Conference on the 2009 Federal Budget: Challenge, Response, and Retrospect, JohnDeutsch Institute, Queen’s University, Kingston, Canada.

Smart, Michael and Richard M. Bird (2007) “The GST Cut and Fiscal Imbalance,” in CharlesBeach, Michael Smart, and Thomas A. Wilson, eds., The 2006 Federal Budget: RethinkingFiscal Priorities (Montreal: McGill-Queen’s University Press), pp. 73-100.

Smart, Michael and Richard M. Bird (2009) “Earmarked Grants and Accountability inGovernment,” Paper for Conference on Policies of Grants to Sub-central Governments: LocalAccountability or Control? Copenhagen, September.

Spahn, P. Bernd, ed. (1978) Principles of Federal Policy Co-ordination in the Federal Republic ofGermany: Basic Issues and Annotated Legislation (Canberra: Centre for Research on FederalFinancial Relations, Australian National University).

Spahn, P. Bernd (1997) “Switzerland,” in Teresa Ter-Minassian, ed., Fiscal Federalism in Theory

24

and Practice (Washington: International Monetary Fund).

Spahn, Paul Bernd and Wolfgang Föttinger (1997) "Germany," in Teresa Ter-Minassian, ed., FiscalFederalism in Theory and Practice (Washington: International Monetary Fund).

Spahn, Paul Bernd and Jan Werner (2007) “Germany at the Junction between Solidarity andSubsidiarity,” in Richard M. Bird and Robert D. Ebel, eds. (2007) Fiscal Fragmentation inDecentralized Countries: Subsidiarity, Solidarity, and Asymmetry (Cheltenham, UK andNorthampton MA: Edward Elgar), pp. 89-113.

Stotsky, Janet G. and Emil M. Sunley, "United States," in Teresa Ter-Minassian, ed., FiscalFederalism in Theory and Practice (Washington: International Monetary Fund).

Trudeau, Pierre Elliot (1969) Federal-Provincial Grants and the Spending Power of Parliament(Ottawa),

Watts, Ronald (1996). Comparing Federal Systems in the 1990s (Kingston: Institute ofIntergovernmental Relations, Queen's University).

Wheare, K. C. (1983) Federal Government (4th ed.; London: Oxford University Press).