Competitive federalism in action
The suggestion that Australian states should compete for business and investment is sometimes viewed as fanciful. The states relinquished their income tax powers during the Second World War and are now heavily reliant on the federal government for revenue. Their residual taxation powers are pretty limited and many of their regulatory functions have been referred to the federal government.
Nonetheless, competitive federalism does exist in some parts of the world. In Switzerland, it is working exactly as it should. Swiss cantons, which have considerable independence from the federal government, are actively competing to attract business and investment.
An article in the Wall Street Journal describes what is happening: Read more »
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