Federalism is always torn between the principles of subsidiarity and solidarity. Defining the federal structure of a country by finding the welfare-maximizing amount and design of government layers is challenging. Thereby, the financial endowment of different layers of government which they need to fulfill their respective tasks is an important aspect. European countries have chosen quite different federal designs to address the question of an optimal degree of fiscal decentralization. The aim of this paper is to analyze these different approaches for Germany, Italy, and the European Union. Parallels can be found in that all the three entities share a form of institutional asymmetry, a kind of fiscal bailout system, and a sort of fiscal equalization scheme.
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