As new federations take shape and old ones are revived around the world, a difficult challenge is to create incentives for fiscal discipline. A key question is whether a politically-motivated central government can credibly commit not to bail out subnational governments in times of crisis if it funds most of their expenditures. The center can commit when subnational governments retain significant tax autonomy, as in the United States. Or if the center dominates taxation, it can tightly regulate borrowing, as in many unitary systems. In a third group of countries including Brazil and Germany, the center can neither commit to a system of market-based discipline nor gain a monopoly over borrowing. By combining theory, quantitative analysis, and historical and contemporary case studies, this book explains why different countries have had dramatically different experiences with subnational fiscal discipline.

Winner of the Gregory Luebbert Award - Comparative Politics Section of the American Political Science Association

"This timely book takes on a crucial topic for scholars and practitioners-especially in newly democratizing societies that are walking the potentially dangerous and complex road towards decentralization. It departs from what was becoming conventional wisdom, and develops a more critical and agnostic approach to federalism and decentralization than its predecessors. Roddenas arguments emerge from comparative politics, game theory, and modern macroeconomics, and his empirical approach combines subtlety and breadth by mixing quantitative and qualitative analyses, ranging from cross-country regressions to rich treatments of complex historical cases.(continued underneath)

Especially appealing is the fact that his country specialization is thematic and comparative rather than regional. Hamilton's Paradox will become a must-read for economists, political scientists, and other analysis interested in federalism, fiscal policy, and institutional development more generally, and it sets the agenda for future research in the field." Mariano Tommasi, Universidad de San Andrés

"This is a landmark book on fiscal federalism and one that will be influential both in policy circles and in the academy for many years to come." Mark Hallerberg, Emory University