ABSTRACT
Introduction Similar to Canada and the United States, Switzerland is a decentralized federation since cantons enjoy a high level of fiscal autonomy. Consequently, cantons have the authority to take measures on both the revenue and expenditure side of the budget to a substantial degree. There are only a few mechanisms that limit their discretion to enact the fiscal policies they want. Therefore, the federal government can credibly commit not to bail out cantons if they are in financial trouble. Yet fiscal independence is limited by the existence of vertical as well as horizontal equalization, a functional distribution of tasks, limited tax sharing and the consensus-seeking culture of the Swiss federation (Linder 1999).
