Sub-national Finance and Crisis

Abstract

This chapter identifies recent trends and explores the effects of global financial crisis on subnational finance. Sub-national finances have also been adversely affected by the global financial crisis, though in varying ways in different countries. Most of the policy responses to the crisis have been from the central governments in several forms. Transfers to sub-national governments have been biased in favour of earmarked transfers to sub-serve national goals, having regard to absorptive capacity. Drawing from the experience of sub-national finance, in the context of the global crisis, it is possible to identify some emerging issues such as possibility of further decentralization in governments in the post-crisis years; scope for increase in the space for fiscal management in sub-national levels; and possibility of building buffers against shocks at sub-national levels.