Fiscal Centralization in Times of Crisis: Evidence from 11 Federal States

Abstract

This paper examines centralization of fiscal policies during the financial and economic crisis, from 2007-2012. We use set logic and QCA methodology to trace out configurations of conditions to explain events of centralization of fiscal policymaking in five European and six non-European democratic, federal countries. Our results show that to understand centralization it is necessary to take into consideration a combination of multiple factors. Following this logic, we find that a clear attribution of fiscal responsibilities amongst levels of governments is important, however, it does by itself not always lead to centralization. Further, this paper shows two pathways of centralization during the crisis, distinguishing, on the one hand, countries with the expected crisis pressure and, on the other hand, countries that centralized preventively even though no high crisis pressure was present. In the former case, international pressure by the European Union plays a significant role. In the latter case, the presence of party congruence is a key to explain centralization.

Keywords: Federalism, Centralization, Economic and Financial Crisis

JEL Classification: H70, H74