ABSTRACT
INTRODUCTION Fiscal federalism is a subject of much recent interest, reflecting primarily developments of great economic significance in Europe. While economic transformation in Eastern Europe has focused attention on issues concerning fiscal decentralization within a nation state, economic integration in Western Europe has raised issues related to fiscal centralization across nation states. The Maastricht Treaty envisages fixed exchange rates within the European Union. This denies member nations access to independent monetary and exchange rate policies, thus emphasizing the role of fiscal policy as the remaining area of national autonomy in macroeconomic policy formulation. However, even fiscal policy is constrained by the convergence criteria of the Treaty, which were established to limit fiscal deficits and public debt, and so buttress sound monetary policies.
