ABSTRACT
This chapter assesses the design and effectiveness of such constraints on sub-national fiscal policy. It can be divided into two categories. The first type bears on fiscal targets and is the main focus of this chapter. For instance, spending caps limit the amount of subnational expenditure that can be authorized within a year. The second type of constraints is imposed on procedures governing the budget process. The chapter centers on exante constraints in a decentralized fiscal framework, also called early warning systems. It does not consider ex post measures dealing with the consequences of protracted fiscal indiscipline, such as debt restructuring, or mergers of subnational entities, which are discussed in. This chapter analyzes the motivations for restricting the fiscal authority of subnational governments and features of current control mechanisms. It proposes a typology of subnational constraints and reviews present arrangements based on this classification. The chapter compares the EU supranational governance framework to the constraints existing in federal countries.
