The Politics of Territorial Finance

Abstract

The rules for allocating financial resources in decentralized states are both crucially important for the operation of government and deeply controversial, since finance is an easily politicized issue. This contribution focuses on this political dimension. Drawing on evidence from a range of decentralized states, it identifies the issues around which central–regional and inter-regional conflict tends to develop, including: the relation of revenue-raising powers to expenditure responsibilities; vertical fiscal imbalances between centre and regions; horizontal, region-to-region imbalances of fiscal capacity; and the processes for revising territorial financial arrangements. The article also draws on this comparative evidence to identify some of the issues the UK is likely to encounter as debate about the reform of its territorial financial arrangements unfolds.