Federal Balance and Economic Stability

Russell Mathews

The Economic Record, 1978, vol. 54, issue 2, 170-181

Abstract: The paper examines the concepts of and the conditions for vertical and horizontal fiscal balance in a federal system, with special reference to intergovernmental grants arrangements and the effects of open‐ended settlements on the stability of the system. The notions of vertical balance, horizontal balance and open‐endedness are then applied to other aspects of economic policy, in particular the formulation of budgetary policy by a single government and the settlement of wage claims. It is suggested that economic instability in Australia during recent years has been associated with two forms of horizontal imbalance, resulting from institutional factors which have encouraged open‐endedness in the process of determining budget priorities on the one hand and open‐endedness in wage bargaining on the other.

Date: 1978
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