This project investigates the factors determining the allocation of expenditure and revenue cempetences between different levels of government. In the theoretical part of the analysis hypotheses concerning the possible determinants of the vertical government structure are formulated. Apart from inter-regional heterogeneities, economies of scale and spillover related to the provision of public goods, institutional rules and political decision-making mechanisms are taken into account. The scope of the project consists in verifying the hypotheses concerning the determinants of the degree of centralization of the public sector by means of an empirical panel analysis for OECD countries. Against the background of recent worldwide decentralization of the public sector and increasing integration of the world economy and of regional economies, a possible causality between economic and political integration and fiscal decentralization is analysed, especially focusing on the aspect of European integration. Since integration is assumed to influence the cost and benefits of decentralization, this dynamic approach allows furthermore to draw conclusions for the relevant determinants of the vertical government structure in general.