Volatile urbanism and the fiscal federalism failure: Why intergovernmental transfer systems are calibrated for a world that no longer exists

Abstract

Intergovernmental fiscal transfer systems remain largely calibrated to cyclical shocks, stable revenue bases, and predictable spatial distributions of economic activity. This Policy Insight argues that those assumptions are increasingly misaligned with volatile urbanism: the condition in which cities operate as exposed nodes in fragile global supply chains, subject to compounding geopolitical, climatic, logistical, and financial disruptions. Because cities generate a disproportionate share of national output while relying on constrained and shock-sensitive revenue streams, current transfer systems often relieve immediate fiscal pressure without reducing underlying exposure. The paper identifies three design failures: formula mismatch, temporal mismatch, and conceptual mismatch. It proposes three reforms: volatility-indexed revenue sharing, an urban volatility reserve facility, and conditioned investment linkages that tie emergency transfers to structural resilience-building.