Second Generation Fiscal Federalism: Implications for Decentralized Democratic Governance and Economic Development

Abstract

Much fiscal analysis of developing countries is on the following pattern: the academic literature is drawn on to construct a model fiscal system; the existing situation in a particular country is examined to determine how it diverges from the model; and a fiscal reform is then proposed to transform what is into what ought to be. This approach is deficient because it does not require sufficient detailed examination of existing reality to ensure that the assumptions postulated in the model are congruent with reality, that the recommended changes can in fact be implemented, or that, if implemented, they will in fact produce the desired results. In contrast, my approach is first to study in detail exactly how the existing system works, and why it works that way, in order to have a firm basis for understanding what changes may be both desirable and feasible. My emphasis has thus always been more on what can be done than on what should be done (Bird 1992,x, emphasis in original).