Comparative federalism is a vibrant area of research, at the crossroads of various methodological and disciplinary approaches, and it has contributed to and enriched broader strands of scholarship in comparative politics and institutional analysis. Alberto Díaz-Cayeros has been one of the leading new voices in this area. Federalism, Fiscal Authority, and Centralization in Latin America is a useful signpost in this agenda. The book explores the politics of fiscal authority, focusing on the centralization of taxation in Latin America during the twentieth century. It develops a theoretical framework and applies it to an analytic narrative of the path of Mexico. It also provides a comparison with the other Latin American federations, Venezuela, Argentina, and Brazil. The book effectively blends quantitative and qualitative empirical exploration with formal modeling, touching important chords of broader debates in political science, including issues of state building, institutional origin and institutional change, the structure of interest representation, and political agency.

The temporal focus is on the moment (several decades after the founding of the federation) in which the federal government is attempting to centralize tax authority, trying to overcome negative externalities from tax fragmentation. The political bargain necessary to implement such reform is complicated by credibility and time-consistency problems—once the states have surrendered tax authority, the federal government might not deliver sufficient transfers to compensate for the loss of tax bases. The ability of the polity to strike that bargain will be conditioned by factors such as the capabilities of states to play solo (financially and militarily), and by the career incentives of subnational politicians. The author argues that the strength of local armed forces in the rich Brazilian states is one of the reasons why Brazil has remained more decentralized; and that national career paths for local politicians were instrumental in the process of fiscal and political centralization in Mexico, where the hegemonic party was the main institutional mechanism permitting the centralization of tax authority after several failed attempts.

The book joins the debates on the causal relation between administrative centralization and party system nationalization. Following recent arguments by Adam Przeworski regarding the causal primacy of institutions, I have the impression that those debates might be misplaced. Identifying mechanisms and the theoretical and historical circumstances under which alternative mechanisms are operational might be more useful than fighting over fundamental causes. It is clear in this book and in the literature reviewed here that there are various mechanisms linking fiscal centralization and party system nationalization, with the causality arrows going in multiple directions. The temporal operation of each of those mechanisms might follow different sequences in different country experiences.

The author also provides a rich description of the political environment and institutional implementation of tax sharing in the four countries over time, with emphasis on governance arrangements, on the degree of fulfillment of central government promises, and on the degree of regional redistribution that tax sharing provides. He should have gone further in linking the credibility problem of the national government with the distributive issues and underlying heterogeneities of subnational units. In modeling the commitment problem, the book emphasizes that states fear opportunism from the national government. Subnational heterogeneity and the potential redistribution of tax sharing are modeled (focusing on the initial bargain) as a cooperative “divide the dollar” game among the n states and the federal government; and little redistribution is predicted, since the disagreement outcomes are high for states with stronger tax bases. These two modeling choices obscure the fact that the national government could be thought of as a decision-making arena that includes subnational representation, and the fact that actual redistribution is decided ex post. The allocation of ex post decision power among the different subnational units is a crucial issue for redistribution, which should be a major concern for the actors of the original agreement—as analyzed in J. Cremer and T. Palfrey (“Political Confederation” American Political Science Review. Vol. 93. [March 1999]: 69–83).

These two alternative ways of theorizing lead in some cases to different predictions, for instance with regard to the role of institutions such as a malapportioned senate. Díaz-Cayeros says that “a malapportioned senate with significant budget authority can grant veto power to minority political actors who can find assurance in that decision body to the effect of generating compliance on the part of the federal government” (p. 21). But it turns out that if, as is the case in most Latin American federations, the national congress overrepresents regions with weaker tax bases, a malapportioned senate might indeed worsen the credibility problem of the “national government” in the eyes of the regions most reluctant to surrender tax bases. This is consistent with some of the outcomes described in the book: In a high malapportionment system such as Brazil, the rich states have been more reluctant to surrender tax bases than in a low malapportionment system such as Mexico.

Even though not treated explicitly in the book, similar issues as those emphasized here seem to be operational in the recent wave of decentralization in Latin America and elsewhere. Recent political and academic discourse has extolled the virtues of decentralization, including the virtues of tax decentralization to reduce the evil behaviors associated with lack of fiscal correspondence, such as regional politicians enjoying the political benefits of spending but not the political costs of taxation. It is interesting that we now observe the same dilemmas in reverse—the poor regions that benefit from overrepresentation and redistribution are the ones most opposed to devolution of tax authority.

The book covers a long swath of history for the four Latin American federations. It provides theoretical insights that could be applied to other regions of the world, to other fields of inquiry, and to the more recent events in these and other countries undergoing changes in their federal fiscal arrangements. For all these reasons, Federalism, Fiscal Authority, and Centralization in Latin America is a must-read for students and researchers of federalism and of Latin America, and a thought-provoking piece for those interested in institutional dynamics more generally.