What is fiscal federalism?
A) A fiscal system for a group of countries in which fiscal policy is set in a treaty signed by all the countries.
B) A fiscal system for a group of countries in which government budget deficits are strictly limited.
C) A fiscal system for a group of countries involving a common fiscal budget and a system of taxes and fiscal transfers across countries.
D) A fiscal system in which fiscal policy is jointly determined by local and national politicians.
E) A fiscal system for a group of countries in which fiscal policy is set by the central bank.

Question

Quizplus · Accepted Answer

Fiscal federalism is the principle of centralizing certain fiscal activities, such as taxation and spending, at the federal level, while also allowing for some decision-making power and fiscal autonomy at the state or regional level. In a system of fiscal federalism, there is typically a common fiscal budget that is shared among the different levels of government, along with a system of taxes and fiscal transfers to manage revenue and spending. Option A describes a form of international fiscal policy coordination, while option B describes a fiscal rule that could be implemented in a fiscal federalism system. Option D is also somewhat relevant, as fiscal federalism involves a sharing of fiscal responsibilities between different levels of government. Option E is not a correct description of fiscal federalism, as the central bank is typically not directly involved in making fiscal policy decisions.

What Is Fiscal Federalism