Integration, decentralization, taxation, and revenue sharing : Good governance, sustainable fiscal policy and poverty reduction as peace-keeping strategies

functional
integration
, which means harmonization by market forces. But usually the market 
forces are distorted by different forms of national regulation so that an active interfer-
ence of the political institutions is often necessary; therefore, this form is named 
insti-
tutional integration
. Because of the persistence of national regulation, institutional 
integration is often the only means to overcome market obstructions. Then the deci-
sion has to be made on which hierarchical level of the institutional setting harmoniz-
ing activities seem to be reasonable. In responding this question the 
subsidiarity prin-
ciple
is usually applied, which also plays a decisive role in fiscal federalism (see be-
low III.2) and acts as rule for good governance: In case of an equally efficient execu-
tion of public tasks the lower jurisdictional level has the priority to fulfill such task. If 
the fulfillment creates impacts on other jurisdictional units (spill-over effects) then it 
has to be checked if the next higher jurisdictional level has to overtake such public 
task. In case of international integration, therefore, possible 
cross border effects 
are 
of utmost relevance. 
II.2.1. Real and Monetary Integration 
In the following one has to differentiate in between real (or trade) integration and 
monetary integration. Regarding 
real integration
there are to extreme forms: com-
plete self-sufficiency (autarchy) or global free trade. In between those two extremes 
more or less tight forms of integration are placed, which are represented in the over-
view of table 1. The main target of real integration is to induce economic growth in 
the member countries for an increase of national as well as community welfare. The 
reasons are to be seen in the more intensified international labor division and spe-
cialization, connected with trade creation, and trade diversion into the direction of the