Fiscal federalism is concerned with the optimal level of centralization or decentralization of state activity. The early literature attributed the central government two functions: ensuring allocative and macroeconomic stability on the one hand and assistance of the poor (redistribution) on the other hand. A second generation of fiscal federalism went beyond the realm of public economics and added aspects of political economy and to the debate. In the context of European integration, these questions are of particular relevance, with migration and the sovereign debt crisis being two examples addressed in this entry.