ABSTRACT
Introduction Austria is a tightly coupled fiscal regime with balanced safeguards. Thus, it has many similarities to cases such as Argentina, Brazil and Germany. The term “balanced” implies that the Federal Government (FG) and subnational governments (SNG) have safeguards that protect them from infringement by the other levels. However, the strength of Austria’s SNG might seem at first sight to be a paradox, as the nation is a strongly centralized federation in terms of the distribution of authority and of fiscal rights (Erk 2004, 2008: Chapter 2). However, recent research has put this centralization assumption into question (Karlhofer and Pallaver 2013). This chapter argues, too, that the distribution of authority and fiscal rights are centralized but that the FG does not unilaterally control the power stream. This might at first seem surprising, as the formal system does not provide the SNG with a strong, active role in the decision-making process (e.g., through an effective veto power). Through the election and party system, however, informal mechanisms can turn the tables. Thus, the SNG are able to strongly influence the federal decision-making process, and the FG is dependent on compromises with the SNG for both fiscal and federal reforms. Such negotiations often must be based on important side payments to obtain SNG’ agreement for important reforms (Karlhofer and Pallaver 2013: 42). This makes Austria different from a tightly coupled fiscal regime such as Spain, where unbalanced safeguards provide the FG with the ability to enforce legislation. Overall effectiveness is thus expected to be low in Austria.
