The Economic and Constitutional Considerations in Allocating Spending Responsibilities in Federal Countries

This study discusses the assignment of spending responsibilities in federal countries, taking into account both economic and constitutional considerations. According to the theory of fiscal federalism, the economic functions of governments contain resource allocation, stabilization, and redistribution. However, it is also important to consider constitutional considerations, as federal systems are based on constitutions and the distribution of power between government levels is influenced by political and historical variables. While economic considerations are vital for achieving efficiency and equity, constitutional considerations are crucial for determining functions and responsibilities and safeguarding the distribution of power consistent with federalism principles. Therefore, this study begins by questioning the best allocation of spending responsibilities in light of economic and constitutional considerations, and what methods can be used to solve conflicts that arise in government financial relationships. We assume that economic considerations alone are not enough to design the financial system, especially in federal countries. While they theoretically explain what needs to be done to achieve economic equity and efficiency, constitutional considerations explain the types of constitutions in terms of details of power distribution in general, including financial matters and functional responsibilities for both central and regional governments. We concluded that there is no one-size-fits-all approach for all federal countries to distribute powers, as federal states operate in different political and historical settings, and the nature of intergovernmental fiscal relations are constantly changing.