By addressing the process of Swiss federalism in both, historical perspective and in its current state of art, we will be able to detect on-going challenges and to link them to the dynamic evolution of federal polity–be it the institutions of Swiss federalism or the subnational actors. The Swiss welfare state expanded significantly during the second half of the twentieth century. The principle of equalizing the disparities between the Swiss cantons was first mentioned in the Federal Constitution in 1958. The majority of the vertical transfer payment was earmarked, the cantons could freely decide on the use of only one-quarter of the vertical transfers. Prior to 2004/2008 National Fiscal Equalization and Task-Sharing between the Federation and the cantons (NFA), supplementary payments were paid on earmarked subsidies and for revenue sharing on the basis of a canton's existing fiscal resources.