Fiscal aspects of subnational governments

Abstract

The aim of this chapter is to offer an overview of best practices for subnational fiscal governance. Based on the theoretical and international empirical evidence on fiscal decentralization design, we address the comon four pillars that encompass any subantional financing system: expenditure responsibilities, sources of revenue, the system of intergovernmental transfers, and credit and borrowing. Last but not least, we highlight the crucial importance of formal and informal political institutions in making decentralization work. All in all, beyond purely fiscal issues the eventual performance of any decentralized setting may depend on the institutions that make (or do not make) it work.