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This paper suggests a putative paradox of federalism, namely that formalfederal polities, which are normally based on strong bicameralism, can at timesbe less effective than more loose, yet decentralizing unitary systems in deepeningfiscal decentralization. For that purpose, case studies of Argentina andSpain are used to provide insights into the way that the distribution of institutionalresources in multi-tiered polities shapes the extent to which the policyof transferring revenue to subnational governments can be exploited forpolitical gain. It does so by using institutional analysis and qualitative evidenceto assess the effect of patterns of territorial representation on fiscal decentralizationpolicies. It focuses first on legislative-level territorial representationand its effect on intergovernmental fiscal outcomes. Also, it explores the conditionsleading to bilateral and multilateral intergovernmental bargaining,which, we will argue are part and parcel of the tension between territorialdistribution of political influence and economic resources. The research suggeststhat whereas Argentine subnational interests are “locked-in” at the Senatelevel and intergovernmental negotiations are conducted bilaterally, openendedinstitutional arrangements and a relatively impotent senate in Spainboosted the redressing of regional concerns through informal intergovernmentalfora and increasing multilateral collaboration. Such differences in patternsof institutional representation and bargaining strategies account for thepaucity of fiscal decentralization in Argentina and its relative progress in Spain.