ABSTRACT
The past ten years of research on the intergovernmental fiscal relations in transition economies have shown that decentralisation is a never-ending,
dynamic process and that there are no universal recipes on how to manage
it for success. Fiscal institutions need to be refined and adapted to a con-
tinuously changing environment. The diversity of historical experiences,
social norms, values and political institutions calls both national govern-
ments and external donors to find tailor-made answers to country-specific
challenges. As the traditional theory of fiscal federalism is too general, it
cannot be expected to provide such answers. This chapter deals with the evolution of the policy agenda of the World
Bank with regard to fiscal decentralisation in Central and Eastern Europe.
It shows how the failure of the Washington Consensus and the academic
discussion on ‘fiscal federalism in theory and practice’ contributed to a
better understanding of intergovernmental fiscal relations. The chapter is
divided into three parts. The first part provides a summary of the main-
stream neo-classical theory of fiscal federalism and its limited applicability
for the analysis of practical problems in intergovernmental finance. The second part deals with the evolution of the development thinking from
the crisis of the Washington Consensus until the emergence of the first
criticisms of the Post-Washington Consensus, with particular attention to
the implications of these different stages on the issues of governance and
the public sector. The evolution of the World Bank’s decentralisation
agenda under the influence of the academic debates in both fiscal feder-
alism and development economics is discussed in the third part of the
chapter.
