The history of the Netherlands reveals major shifts from centralisation of government tasks towards decentralisation and vice versa. In the 17th century, the Republic of United Provinces was the first federal state in modern history. Many transformations later, the Kingdom of the Netherlands became a big centralised welfare state. Since the 1980s, a reverse development has started: the welfare state is being downsized and decentralised. This article describes and discusses this evolution in view of a broad spectrum of economic theories. Four conclusions are drawn. First, the major changes in Dutch fiscal decentralisation arrangements were introduced as policies to overcome a severe economic and political crisis. Second, many other factors – like the increase in communication, mobility, population density, urbanisation and the role of government – also necessitated changes. Third, in order to ensure efficient and financially solid government, the accountability and transparency of central and local government and their interrelationships have been improved substantially. Fourth, current arrangements are not optimal and should be changed. For example, Dutch municipalities should increase further in scale, and the role of Dutch provinces should be reconsidered.