ABSTRACT
The decentralization of government, whether in federations or unitary states, raises some of the most intractable problems in the field of public finance. Financial dependency and any centralization that flows from it may thus be the inevitable consequence of using decentralized government in the pursuit of redistributive political objectives. Most notably there is a clear link between the financing of area governments and their relations with the centre. This chapter examines the issues, by examining the main sources of revenue available to area government; by looking at recent trends in subnational expenditure and the implications of these for revenues; by examining the reasons for the growing dependency on higher-level governments and, by trying to disentangle strands in the argument about the relationship between dependency and autonomy. There appears to be a widespread trend towards general grants, both to achieve territorial equality and to provide for greater decentralization.
