THE PAPER | Fiscal Federalism and Subnational Autonomy: A Brief Note

Fiscal federalism covers matters involving constitutional arrangements that assign expenditure responsibilities and revenue raising capacities, as well as the mechanisms for adjusting horizontal and vertical imbalances.

By Zemenu Yesigat
Constitutional and Public Law, Addis Ababa University, Addis Ababa, Ethiopia 

Image Attribute: Photo courtesy Petterik Wiggers / WFP / U.S. Embassy Addis Ababa via Flickr creative commons

Image Attribute: Photo courtesy Petterik Wiggers / WFP / U.S. Embassy Addis Ababa via Flickr creative commons

Fiscal Federalism



Fiscal federalism covers matters involving constitutional arrangements that assign expenditure responsibilities and revenue raising capacities, as well as the mechanisms for adjusting horizontal and vertical imbalances. Fiscal federalism is, therefore, a study of the allocation of legislative and executive responsibilities as well as taxation powers among different layers of a government.


Expenditure responsibility can be discerned from in the division of legislative and executive powers among different tiers of a government in a federal system. Likewise, there are allocations of exclusive as well as shared and residual powers of legislation in the Federal Democratic Republic of Ethiopia (FDRE) Constitution. For instance, apart from reserving residual powers for States, the Constitution bestows them with powers to make or amend their respective constitutions as well as to issue and implement socioeconomic development policies, strategies and plans. Shared powers in the Ethiopian federal system could appear either in the form of concurrency or framework powers.



As a general rule, the FDRE Constitution adopts a dual model of allocating legislative and executive powers. As per article 50(2), both tiers of government have legislative and executive powers on matters that fall under their respective jurisdictions. The division of expenditure responsibilities in the Ethiopian federal system, in principle, corresponds with the allocation of legislative powers.







The division of revenue powers among the various tiers of government is one of the pillars of a federal arrangement. Generating revenues for execution of expenditure responsibilities as well as playing a vital role in macroeconomic regulation fall under the manifold functions of taxation powers(Watts, 2008). Recognized as an indispensable element of a federal system, allocation of revenue powers holds a significant place in the FDRE Constitution. It stipulates the division of taxation powers under different titles; these are the federal and States’ exclusive powers of taxation as well as concurrent and residual (un-designated) areas of taxation (Articles 96-99 of FDRE Constitution).


In addition, the procedures and institutions ensuring vertical or horizontal transfers are the subject matter of the discipline. Also, procedures, institutional setups ensuring sub-national borrowings, in particular, and the issue of stabilization and management of economy, in general, are also the subject matters of fiscal federalism.
Subnational Fiscal Autonomy-Redefined
Whether it is adopted for the economic rationales of efficiency, equity and accountability, or employed as a response to ethno-cultural or political claims of self-determination, decentralization measures should ideally guarantee the financial autonomy of constituent units. It is financial capacity of sub-national governments that is a determining factor in the effective implementation of constitutionally mandated expenditure responsibilities and the execution of local policies and priorities.




Significant discrepancy among scholars aside, fiscal autonomy is considered to be the most important measure of sub-national financial autonomy. Fiscal autonomy deals with tax autonomy thereby delineating the share of own-source revenue from the total sub-national revenue. For this reason, the power to levy taxes (tax autonomy) is the fundamental attribute of fiscal autonomy since it is such power that distinguishes autonomous (own-source) revenues from other types of revenue. Basically, fiscal autonomy is equated with the ability of constituent units to access resources independently, including sub-national discretion over tax bases and tax rates (Blöchliger & Rabesona, 2009). Moreover, fiscal autonomy allows regional governments to decide the size of their autonomous revenues.



For instance, in the section dealing with division of powers between the federal and regional governments, the FDRE Constitution dictates the general principle for levying and collecting taxes from their respective revenue sources (Art 51/10 and 52/2/e of the FDRE Constitution). Both tiers of the government have the autonomy to administer taxes that fall under their exclusive jurisdiction. Hence, it is possible to say that the Constitution envisaged sub-national fiscal autonomy, at least in relative terms.


Therefore, it is necessary to look into the autonomy in generating revenues as well as the volume of such revenues while studying the fiscal autonomy of State governments. Generally speaking, the sub-national fiscal autonomy of sub-national governments is principally linked with their power and capacity to levy and collect the revenue that is required for meeting their expenditure needs.

About the Author:


Zemenu Yesigat

Haramaya University, Dire Dawa, Ethiopia 
Constitutional and Public Law, Addis Ababa University, Addis Ababa, Ethiopia 
College of Law, Dire Dawa University, Dire Dawa, Ethiopia

Publication Details:


This article is an excerpt from a technical paper, titled - "Subnational Fiscal Autonomy in a Developmental State: The Case of Ethiopia" published at Beijing Law Review, Vol.07 No.01(2016), Article ID:64304,9 pages  DOI: 10.4236/blr.2016.71005. 



Copyright © 2016 by author and Scientific Research Publishing Inc.
This work is licensed under the Creative Commons Attribution International License (CC BY).




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IndraStra Global: THE PAPER | Fiscal Federalism and Subnational Autonomy: A Brief Note
THE PAPER | Fiscal Federalism and Subnational Autonomy: A Brief Note
Fiscal federalism covers matters involving constitutional arrangements that assign expenditure responsibilities and revenue raising capacities, as well as the mechanisms for adjusting horizontal and vertical imbalances.
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