Intergovernmental disputes within federal or decentralized systems can hinder a country’s harmonious operation, negatively impacting the fiscal health of central and subnational governments. These disputes predominantly arise from ambiguities in power and resource distribution, as well as complexities embedded within the national constitution. The judiciary, particularly through decisions rendered by Supreme or Constitutional Courts, significantly influences the power equilibrium and fiscal dynamics among federal, state, and local entities. Furthermore, central governments frequently establish dedicated institutional frameworks and mediation mechanisms to foster dialogue and cooperation.
A recent OECD analysis titled “Navigating Conflict and Fostering Cooperation in Fiscal Federalism” extensively uses artificial intelligence (AI) tools to explore the impact of constitutional court rulings on the development of fiscal federalism in seven countries: Australia, Belgium, Brazil, Canada, Germany, India, and the United States. It also includes shorter sections on Spain, the Netherlands, and the European Union. This approach fills a gap in research and data, offering a more detailed understanding of fiscal dynamics within multi-level governmental structures, despite the absence of a comprehensive database and academic literature.
This research compares countries based on their governmental structures and judicial systems, providing a summary of governance and judiciary, and focusing on notable constitutional court rulings. It also scrutinizes existing coordination frameworks, proposing recommendations to improve dialogue and address intergovernmental fiscal conflicts.
Key Findings:
- Intergovernmental disputes are a frequent and inherent aspect of the decentralization process, essential for achieving a balance among economic, political, and institutional forces within countries. The frequency and nature of these disputes vary widely across countries, influenced by differences in the volume and significance of judicial rulings and the unique socio-political contexts that shape judicial approaches to fiscal conflicts.
- Constitutional arrangements play a significant role in influencing the resolution of intergovernmental fiscal disputes. However, there is limited evidence of the integration of mediation or arbitration mechanisms within judicial systems to handle intergovernmental fiscal issues.
- Broader institutional mechanisms that promote cooperation and dialogue can effectively address and prevent conflicts, while also ensuring legal certainty.
Key recommendations
The key recommendations for managing intergovernmental disputes and minimizing their negative impacts include:
- Clearly defining the powers and responsibilities of central and subnational governments, and establishing specific constitutional and legal frameworks that balance fiscal decentralization with national policy objectives
- Understanding the role of courts in resolving intergovernmental fiscal disputes, and promoting the use of mediation mechanisms to help settle intergovernmental conflicts before court intervention.
- Improving fiscal coordination and cooperation between central and subnational governments by creating platforms for dialogue, providing institutional support, and fostering collaborative relationships
- Staying flexible to adapt to changing circumstances, reassessing and enhancing fiscal mechanisms as necessary.
Access the full publication for free on OECD’s website:
Sean Dougherty and Tatiana Mota (2024), Navigating Conflict and Fostering Cooperation in Fiscal Federalism, OECD Fiscal Federalism Studies, OECD Publishing, https://doi.org/10.1787/3d5c8c20-en
