Fiscal Federalism, Revenue Sharing and the Size of Government

Abstract

Publisher Summary This chapter focuses on fiscal federalism, revenue sharing, and the size of government. It discusses the importance of fiscal federalism for the size of the tax burden and of the public sector. The discussion is based on the situation in Sweden. In this context, Sweden is an interesting example. On the one hand, Sweden has a relatively far-reaching decentralization of the public sector. Local units, 284 primary local governments, and 23 secondary local governments are responsible for 70% of the total public expenditures for consumption and investment. If national public goods and the social security system are excluded, only a minor part of total public expenditure is directly undertaken at the central level. On the other hand, Sweden has, on the whole, a high tax burden and extensive government intrusion into economic life. The chapter presents a model together with the result obtained in a closed economy, one in which there is no competition between local governments whatsoever. The result is compared with the result obtained in an economy with many small and completely sovereign local governments. The chapter also describes the sort of revenue sharing which is practiced in Sweden.