MACROECONOMIC CONTROL OF SUBCENTRAL GOVERNMENTS - EXPERIENCE FROM THEUSA AND SCANDINAVIA

Subcentral governments have gradually become more and more important i n the general level of public economic activity in Western nations. To an increasing extent, macroeconomic management implies that the econo mic activity of subcentral governments is taken into account. But how can central governments coordinate the economic activity of numerous s ubcentral governments? What kind of intergovernmental arrangement is n ecessary? The author argues that fiscal federalism, the traditional ap proach to this problem, cannot answer these questions satisfactorily. The focus of fiscal federalism is on economic incentives in intergover nmental relations. The author argues that this is not sufficient. Fisc al federalism must be supplemented by a focus on political methods of influence. An analysis of Scandinavian and US ways of involving subcen tral governments in macroeconomic management shows that the role playe d by subcentral government associations is crucial in the effectivenes s of macroeconomic management.