Knowledge, coordination, and fiscal federalism: an organizational perspective

This essay brings fiscal federalism theory into contact with the knowledge perspective to economic organization. The question addressed is: can a central government be justified in the context of fiscal federalism on grounds of economic organization? We point out that if one looks at the organizational problem of the vertical structure of the public sector from the standpoint of knowledge asymmetry the question of a central government in a federation becomes primarily a story of coordination of dispersed and specific knowledge.