Southern Public Administration Education Foundation

Understanding the Evolution of Constitutional Federalism: The Case of Australia

Published in PFM, Vol. 4 No. 4

The interest in, and the appeal of, fiscal federalism and fiscal decentralization have been increasing in recent years. At the same time many mature federations continue to evolve towards greater centralization. The reasons for the evolution of fiscal federalism towards greater centralization remain unclear, and the traditional theories of fiscal federalism shed little light on the reasons for such evolution. This paper explores the evolution of federalism in the case of Australia, in an overall framework provided by the new institutional economics -- that the motivations and incentives of economic agents, and the options available to them, are influenced by the incompleteness of contracts. The paper shows how, within the context of an incomplete contract, certain key agreements about taxing powers, the attitudes of the 450 High Court and the political strength of the Commonwealth relative to the States have driven a continuing process of centralization in Australia.

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