Federalism

Institutionalizing flexibility: finance commissions
Disagreements over the allocation of revenues or the distribution of taxation 
powers may be a sticking point of constitutional negotiations. Part of the 
difficulty is that these are, or appear to be, zero-sum negotiations: every penny or 
cent granted to subnational authorities is directly lost to the federal authorities. 
The long-term outcome of agreements reached during the constitution-building 
process can also be unpredictable. For example, agreements might be reached on 
the assumption that oil is abundant, and these agreements might be tenable as 
long as oil revenues are steady, but if the price of oil drops, or the supply of oil 
dries up, this could cause a fiscal crisis from which the constitution offers no easy 
escape route.
One solution is to introduce a degree of flexibility into the fiscal arrangements 
of the constitution, such that these negotiations, rather than being tied to the 
constitution itself, can be revisited from time to time. In India, for example, there 
is a Finance Commission (article 280), which is appointed at five-year intervals to 
advise on the distribution of certain tax revenues between the Union Government 
and the states. A similar National Finance Commission, consisting of national 
and provincial finance ministers, exists in Pakistan (article 160).

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International IDEA 33
9. Federalism and the constitution as a whole
9. Federalism and the 
constitution as a whole
The decision to adopt a federal system will shape the rest of the constitutional 
structure, with implications for the structure of the legislature, the constitutional 
amendment process and other aspects of constitutional design.
In situations where federalism is adopted primarily as a response to the 
diversity of a heterogeneous society, federalism’s commitment to territorial 
decentralization cannot be considered in isolation but only in relation to the 
whole package of constitutional provisions that form the bargain between 
communities, including such matters as language, religion and minority 
representation.