While not a federation or federally instituted, this is exactly how it works in the Netherlands. The central government collects income tax, VAT and social secu

While not a federation or federally instituted, this is exactly how it works in the Netherlands. The central government collects income tax, VAT and social security taxes, etc. The local government (e.g. municipalities mostly, provinces sometimes) get grants and spend it. Example: Healthcare is locally instituted by the municipalities/cities ("gemeenten") while the tax (social securities) are collected nation wide together with income tax. Please note that only the executive part is local. The municipalities can also levy taxes but usually only on common goods like sewage, water and on home ownership or equivalent for people who rent. The provinces do the same but it is far less than the central government does.