Federal Dynamics in Times of Economic and Financial Crisis

42 Pages Posted: 5 Aug 2015

See all articles by Dietmar Braun

Dietmar Braun

University of Lausanne

Philipp Trein

University of Lausanne, IEPHI

Date Written: April 10, 2014

Abstract

The global economic and financial crisis is a challenge for all governments but in particular for federal states, as divided and/or shared territorial powers make federations susceptible to coordination problems in fiscal policy-making. This article is interested in the effects of the on-going crisis on federal relations. Three kinds of problems are evoked, which may become the cause of federal tensions and conflicts – opportunism of subgovernments, centralisation, and erosion of solidarity amongst members of the federation. Our analysis of fiscal policies and federal conflicts of eleven federations between 2007 and today reveals three kinds of coordination problems: shirking in the use of federal government grants, rent-seeking in equalisation payments, over-borrowing and over-spending. Our results show that shirking remained limited to few cases and occurred only in the first part of the crisis. However, rent-seeking and over-borrowing and -spending led to a reduction of solidarity amongst subgovernments, and increased regulation of fiscal discretion of the members of the federation. Subsequently, tensions in federal relations increased, though only in one case, this has challenged the federal order as such.

Keywords: Federalism, economic crisis, institutional changes

Suggested Citation

Braun, Dietmar and Trein, Philipp, Federal Dynamics in Times of Economic and Financial Crisis (April 10, 2014). European Journal of Political Research, Vol. 53, No. 4, 803-821. Available at SSRN: https://ssrn.com/abstract=2638844

Dietmar Braun

University of Lausanne ( email )

Lausanne, Vaud CH-1015
Switzerland

Philipp Trein (Contact Author)

University of Lausanne, IEPHI ( email )

Lausanne, Vaud CH-1015
Switzerland

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