Complete Hamilton’s Paradox Test Bank

Fiscal Discipline in a Changing World

As new federations take shape and old ones are revived around the world, a difficult challenge is to create incentives for fiscal discipline.

Understanding the Central Government’s Role

A key question is whether a politically-motivated central government can credibly commit not to bail out subnational governments in times of crisis if it funds most of their expenditures.

The Importance of Tax Autonomy and Regulation

• In countries like the United States, subnational governments retain significant tax autonomy, allowing the center to commit to a system of market-based discipline.
• In unitary systems, the center dominates taxation and can tightly regulate borrowing, ensuring fiscal discipline.
• In countries like Brazil and Germany, the center lacks a monopoly over borrowing, making it challenging to commit to fiscal discipline.

By combining theory, quantitative analysis, and historical and contemporary case studies, this book explains why different countries have had dramatically different experiences with subnational fiscal discipline.

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