The second part of this book seeks to shed light on the variation in the centralized federal compromises that were established in the Latin American federations. The emphasis lies on the moment of creation of revenue-sharing systems rather than on contemporary events and debates on fiscal federalism. The creation of a centralized fiscal bargain differed among the Latin American federations depending on the resources available to the central government, the credibility of the threats made by the states, and the way in which promises by the federal government were enforced. If a bargain was struck, it had distributional consequences. The benefits of cooperation could be shared among the participants in multiple ways.

The theory in Chapter 1 suggested that in order for revenue-sharing systems to become established, a credible “federal fiscal compromise” must be reached in which the federal government commits to making a financial transfer to the states and provinces. The empirical evidence suggests that the commitment is hard to fulfill because Latin American federal governments have often breached fiscal compromises by withholding resources from their states and provinces. On a more positive tone, the evidence suggests that democratic accountability improves the compliance of federal governments with revenue-sharing. The analysis of Venezuela, Argentina, and Brazil shows that democracy matters for fiscal federalism.

The effect of democratization of fiscal authority and centralization is an issue that could not be assessed in the case of Mexico because of the absence of a regime change until 2000.