58 A Assignment of Responsibilities and Fiscal Federalism Richard BIRD, Bernard DAFFLON, Claude JEANRENAUD and Gebhard KIRCHGÄSSNER * 1. Introduction Over the past thirty years, a clear trend has emerged worldwide towards the decentralization of spending and revenue-raising responsibilities to sub-national levels of government (states, regions, provinces, cantons, Länder) and to the third tier (the local, communal, municipal level). For Ter-Minassian (1997, 3), “this trend is evident not only in federal, but also in many unitary countries, including some that have a long tradition of centralist government”. Political developments in post-communist Central and Eastern Europe (the countries in Transition and the Balkans), together with recent discussions in the European Union, and new trends in Latin America, Asia and Africa, show that this tendency does indeed exist worldwide. Decentralization requires us to rethink the role and responsibilities of the various government layers in relation to the traditional policy objectives of allocation, distribution and stabilization. Fiscal federalism can no longer be accepted solely as an “economically efficient” means of providing and financing public services. Decentralization can more effectively promote democratic and participatory forms of government, seeking to improve the responsiveness and accountability of politicians and bureaucrats, and to ensure closer correspondence of the basket of publicly provided goods and services with the preferences of beneficiaries and taxpayers in the various sub-central jurisdictions. Carried out efficiently, fiscal federalism or fiscal decentralization can provide an alternative to the market as a way of promoting the coincidence between the three circles of budgetary policy: those who decide, those who benefit, and those who pay. * Richard BIRD, Professor Emeritus of Economics, University of Toronto, Adjunct Professor, Director of the International Tax Program, Joseph L. Rotman School of Management, University of Toronto, Canada; Bernard DAFFLON, Professor, Chair of Public Finance, BENEFRI Centre for Studies in Public Economies, University of Fribourg, Switzerland; Claude JEANRENAUD, Professor, Institute for Economic and Regional Research, University of Neuchatel, Switzerland; Gebhard KIRCHGÄSSNER, Professor, Swiss Institute for International Economics and Applied Economic Research, University of St Gallen, Switzerland. Politorbis Nº 32 – 1/2003