As a country with a limited size of population and territory, Switzerland consecutively tops the ranking in the global Competitiveness Report. Federalism is an essential part of the Swiss success. A unique history of a ‘bottom-up’ construction makes a high level of decentralization and local autonomy the organizing principles of the Swiss model of federalism. A large-scale reform of the fiscal federal system began in 2008 in order to enhance efficiency through disentangling federal and cantonal responsibilities in a whole range of policy fields and in turn to meet the challenges brought about by the global competition. This paper analyzes the reasons for and the processes of the reform and the lessons that should be drawn from this reform in Switzerland.