Financial Autonomy vs. Solidarity: A Dialogue between Two Complementary Opposites

Abstract

This paper compares approaches to the design and operation of fiscal arrangements in federations by reference to the extent to which they reflect two principles. The first is autonomy, which refers to those elements of a system that expect and protect independent action by each order of government and encourage self-reliance. The second is solidarity, which refers to features that involve interdependence and anticipate the collective interest in effective government in a federated state. The paper argues, by reference to the case studies of the United States and Germany, that all federal-type systems necessarily have elements of both, although the principles manifest differently, and in different proportions, under the influence of contextual factors, including federal design. Thus, in the United States, solidarity is coloured by a competitive and adversarial federal operation; in Germany, demands of autonomy are tailored to and limited by core expectations of solidarity. Further, the paper argues that, whatever the initial mix of autonomy and solidarity, change is likely over time. Catalysts for change include the economic context in which the federation operates, internally and externally, and political power-struggles between the spheres of government. Change may involve alteration in the federal constitutional or legal framework. Even where the framework remains static, however, functional change may occur through political practice reinforced by judicial interpretation.

Keywords: financial autonomy, solidarity federal constitutional

JEL Classification: K00, K39