Fiscal Federalism for Emerging Economies: Lessons from Switzerland?

Switzerland is one of the most non-centralized countries in the world. A groining literature is examining the economic effects of tax competition between the 26 Swiss cantons. Despite the relative success of Swiss federalism, most federal countries follow the principles of coordinated rather than competitive federalism. We identify the institutional preconditions for well-functioning competitive federalism in Switzerland. The second part deals with the applicability of the Swiss experience for emerging economies in Latin America. The analysis recognizes that most institutions identified to be crucial in the Swiss case are missing in Latin America. This leads to the policy conclusion that competitive federalism can only produce its positive effects under certain institutional circumstances. These circumstances are often not considered when introducing lax competition in emerging economies. Copyright 2003, Oxford University Press.