Fiscal decentralization aims to improve regional finance independency and reduce the fiscal dependency of central government. However, in practice, there are many areas that still rely on the assistance central finance for their regional development. This research aims to discuss the development of regional finance independency and analyze the influence of regional finance independency on economic growth in Banten Province. This research uses descriptive method and panel data on 6 (six) regencies and cities in Banten Province at 2001-2011. The results showed the significantly positive effect of regional finance independency on economic growth and significantly negative effect of balance fund’s ratio on economic growth. Key words: local revenue, economic growth, panel data
Using soft budget theory to explore the formation mechanism and the deep institutional incentive of the local financing platform debt expansion from the perspective of fiscal / financial decentralization, construct theoretical framework which explain the expansion of local debt financing platform and conduct an empirical test, the results showed that the higher the degree of fiscal decentralization, fiscal autonomy as a soft constraint body of local government the stronger, local financing platform debt scale is greater; the higher the degree of financial decentralization, local government and financial institutions have the higher autonomy with respect to the central, local financing platform debt scale is bigger; financial synergy degree is stronger, local government financial mutual supervision prompted the local government debt more transparency, local debt financing platform size is smaller.
PETER MWIATHI SILAS, Nelson Wawire, Perez Ayieko Onono-Okelo
The Kenya government has instituted fiscal decentralization over the years to promote social economic development, reduce poverty and income inequality and ensure balanced regional development. Despite these efforts, poverty levels have remained high in Kenya. The literature on the relationship between fiscal decentralization and poverty has been rather inconclusive about the effects of fiscal decentralization on poverty. The main objective of this paper was to analyse the effects of fiscal decentralization on poverty in Kenya. Using cross-county panel data from 2002 – 2014 and published data from government agencies, UNDP reports and World Bank reports, the paper estimated various empirical models to analyse the effects intergovernmental transfers, sub-national own-source revenue and county expenditure on poverty in Kenya. The study established that the effect of fiscal decentralization on poverty depends on the nature of decentralization and the extent of fiscal decentralization as well as the county specifics. The paper therefore, recommends the need for for county governments to have adequate own-source revenue to finance their expenditure as opposed to relying on intergovernmental transfers from national government.
Dana Országhová, Radomíra Hornyák Gregáňová, Viera Papcunová
Changes in the socio-economic conditions of countries initiate modifications in the management of its economic and social processes, which are also followed by conversions in the public administration. At the same time, they are also looking for the concepts of rational organization and effective management of the public administration. The public administration of the Slovak Republic is created by local self-government and regional selfgovernment. Municipalities represent the local self-government bodies. The effective conditions of the municipalities are creating the effective setting of its financing. Until 2004 the financing of municipalities was determined annually by the state budget act and for the municipalities distributed from the state budget a share of the tax of personal income, which consisted of three taxes: tax of personal income, tax of the corporation income and road tax. In 2005 the fiscal decentralization took place in Slovakia as a part of the consolidation of public finances, resulting in a new way of financing municipalities. The basis of the new financing system of municipalities was to determine the tax of personal income as a single share tax, in particular, because the dynamics of the income of this tax was expected to grow even in the medium term. The objective of the paper is to evaluate changes and trends in the financial management of municipalities based on selected fiscal indicators within the period 1993 -2015.
This study examines the relationship between decentralization, democratic governance, and the working of local self-government institutions in India. The 73rd and 74th Constitutional Amendments established Panchayats and Municipalities as constitutionally recognized bodies of grassroots governance, intended to promote participation, accountability, and locally responsive development. However, the quality of decentralization continues to vary because the transfer of authority, finance, and personnel remains uneven across states. The study adopts a descriptive and analytical design to assess how local self-government influences democratic participation, administrative responsiveness, and service satisfaction. For academic demonstration, a structured survey framework using a sample of 63 respondents was prepared, including elected representatives, officials, and citizens. Three dimensions were examined: the link between citizen participation and accountability, the relationship between fiscal decentralization and service delivery satisfaction, and differences in perceptions of responsiveness among stakeholder groups. The analysis applies Chi-square, Spearman rank correlation, one-way ANOVA, and multiple regression to interpret the data. The results indicate that decentralization improves democratic governance when it is accompanied by meaningful devolution, transparent institutions, trained local leadership, and active community engagement. The study concludes that local self-government can become a more effective instrument of inclusive development when constitutional design is supported by administrative capacity, fiscal autonomy, and regular citizen oversight.
Combining the location characteristics of provincial capitals and municipalities, from the perspective of fiscal financial decentralization system, the different expansion of local debt financing platform is studied to find out that the degree of financial fiscal decentralization is the main institutional incentives of local financing platform debt expansion difference, and Shanghai and Hangzhou have obvious location advantages. The advantages of these factors may include the development of the financial industry, the development of the Internet and other factors.
Deconcentration is simply defined as the delegation of administrative authorities of the central government to the lower level of governments along with the transfer of funds to finance the implementation of the authorities. Deconcentration, in the perspective of public administration, is the transfer of administrative responsibility for specified functions to lower levels within the central government bureaucracy, generally on some spatial basis (Ferguson and Chandrasekharan, 2004). The policy and important decision still lays on the central government and the lower governments or units are merely the implementer of the policy and decision. The practice of the deconcentration in Indonesia has obviously been implementing since the independence of the country with some dynamism and adjustments particularly with the national interest, strategies, economic or even politic. The political reform of Indonesia in the year of 1998 is mainly generated by the demands of some provinces and regions to separate from the country for instance those of demands from Aceh, Papua and Maluku. To respond the demands, central government issued decentralization law notably by the Law No.22/1999 which the revision to the previous Law No.5/1974.
Concha Artola, María Gil Izquierdo, Javier J. Pérez, Alberto Urtasun · 6 authors
In highly decentralized countries the subnational dimension of economic developments acquires particular relevance, given the existence of potential spillover effects across jurisdictions or the existence of asymmetric impacts of national-wide macroeconomic shocks. At the same time, though, the analysis of sub-national macroeconomic and public finance short-term developments tend to be restricted in many countries due to data limitations. Against this backdrop, the aim of this paper is to provide an overview of the available data for monitoring macroeconomic and public finance developments at the regional level in Spain, and to present some examples of its practical use in real time. After a thoroughly review of the publicly available information, we identify two key informational gaps in this area of conjunctural analysis, namely: (i) the lack of homogeneous and official quarterly measures of aggregate regional economic activity (in particular, real GDP), and (ii) the limited sample size of time series pertaining to government budgetary developments at the regional level.
Decentralization is widely recognized to improve sustainable development through promoting good governance. However, like many African countries, Ethiopia has faced a number of challenges in good governance building process. Thus, this research focuses on assessing the role of decentralization in promoting good governance in Wolaita and Dawuro Zones. The study employed descriptive research design to describe the practices of decentralization and its role in promoting good governance. Both primary and secondary data were used. The primary data was collected through questionnaire and interview while secondary data was collected by conducting extensive desk review from published and unpublished documents like journals, articles, books, reports, etc. To realize the objective of the study 400 employees were selected from 12 selected public sectors of Wolaita and Dawuro zone using simple random sampling techniques. The collected data were analyzed using both qualitative and quantitative method of data analysis. The finding of the study shows that the practice of political and administrative decentralization was good. But fiscal decentralization was lowly practiced and remains the problem in promoting good governance. This was mainly because power of rising and controlling own revenue, extent of expenditure planning and financing, revenue transfer ratio, autonomy to borrow fund, financial management capacities of local governments were low in Wolaita and Dawuro zones. Therefore, the government should pay attention to fiscal decentralization by encouraging local governments to have enough fiscal control and capacity to plan their activities in most effective and efficient manner. Keywords : Decentralization, Good Governance, Political decentralization, Administrative decentralization, Fiscal decentralization
This paper examines the impact of fiscal decentralization on both public investment in innovation (measured as the share of research and development - R&D - spending in total government budget) and on the intensity of basic research within the public R&D bundle. We present a theoretical model where a ‘benevolent government’ invests in R&D aiming at maximizing net income available in the country (central government) or in the respective region (subnational government), where states compete to attract capital investment, and where R&D results are subject to interregional knowledge spillovers. The model predicts that decentralization leads to a lower level of public spending on innovation and to a lower share of basic research in government R&D budgets. The implications of the model are empirically tested utilizing country aggregate data. We find evidence that expenditure decentralization leads to lower intensity of basic research within public R&D and that both revenue and expenditure decentralization negatively affect the size of innovation spending. The findings suggest that fiscal decentralization policy, expected to be beneficial in many other dimensions, should be accompanied by measures to compensate for the otherwise decrease in innovation spending and that the assignment of expenditure responsibilities should have central government play a greater role in financing and carrying out basic research.
Introduction. Local budgets are the most numerous link of the budget system, the financial base of local authorities, which plays a decisive role in implementing regional policy through financing public expenditures and are the key to the emergence of a capable and efficient local government. However, the unsatisfactory results of the local authorities functioning in previous periods have led to the objective need to reform existing structure of local finances through fiscal decentralization. Purpose.To characterize the essence of financial decentralization from the point of view of its necessity for the economy of territorial and administrative units development and to analyze the success and risks of its implementation in Ukraine. Methods. In the course of writing the article, several methods were used. Among them were the method of analysis and synthesis, scientific comparison, formal logic and dialectics. Results. It has been determined that since the beginning of financial decentralization, the share of local budgets in the consolidated budget of Ukraine has doubled. The local budget revenues has increased in 2.8 times. Facts above indicate increasing in financial resources available to local authorities and, accordingly, more equal distribution of powers and opportunities of local and state authorities. The financial capacity of local budgets is evidenced by the balance of funds on accounts, which at the end of 2017 were amounted to 78.1 billion UAH. As a result, due to the accumulated resources of local budgets, more expenditure responsibilities has been given to local authorities. In addition, since the beginning of 2015, the formation of united territorial communities has begun, of which 699 had been formed by the end of 2017, but only 159 of them are fully operational. However, despite of the results achieved, significant financial, administrative and political factors threaten to continue fiscal decentralization. Conclusion. Despite the successful implementation of financial reform for local budgets, neglecting obvious risks can have a significant impact on the budgetary system of Ukraine. Therefore, the state and local authorities should further strengthen the requirements for the quality of community associations, control over their implementation and more objective planning and analysis of the results achieved, as the shortcomings in the reform will tend to be strengthened and may have a synergistic effect.
After 2001 Serbia started the process of democratization and socio-economic transition. Within the overall reform of public administration and the public finance system, the process of fiscal decentralization has started to strengthen the position of local self-governments. Decentralization in every respect, and especially fiscal, is the most important assumption of local development. In order for the decentralized state to function well, it is important that these three forms of decentralization: political, administrative and fiscal, be well coordinated with one another. Fiscal decentralization refers to the collection and consumption of funds at various levels of government. The paper outlines the reasons justifying the process of fiscal decentralization, as well as the reasons that are against fiscal decentralization, i.e. the reasons that speak of the limitations it carries with it. The goal of properly implemented fiscal decentralization is to strengthen the role of cities and municipalities, as well as their fiscal autonomy, that the Republic entrusted the local authorities with numerous important competencies and that the local budgets are multiplied. Decentralization in Serbia has not progressed satisfactorily. Serbia put fiscal decentralization at the heart of public administration reform. Local self-government financing in Serbia changed in this period, which led to instability. Only in the period between 2008 and 2015 the legal frameworks of the system of financing of local self-governments changed several times and thus the process of budget execution and financial management at the local level was impaired. The mentioned changes in the legal framework for the ultimate consequence had the reduction of the budgets of local governments, which jeopardized their ability to perform their communal, investment and other functions.
This paper discusses how decentralized countries can achieve sound fiscal relations between the central government and lower government levels. The concepts of “vertical gap” and “vertical balance” provide an analytical framework for identifying and addressing key challenges. These concepts can help policymakers ensure that the financing of subnational governments (composed of transfers received from the center, own revenues, and borrowing) is both efficient and adequate given the allocation of spending responsibilities. More generally, the paper offers some perspectives about the optimal design of decentralization systems by examining the sequencing and economic principles underlying revenue and expenditure assignments, the use of transfers, and borrowing.
This article generalizes arguments and counter-arguments within the scientific discussion regarding the determination of the optimal decentralization level, which will provide the country’s innovative development, since the key task of decentralization has to be not only to expand the income and expenditure powers of the subnational formations but also to understand the final goal of this process – qualitative transformation of the country’s economic system towards improving its innovativeness and competitiveness. Thus, the decentralization reform has to be the driver of the innovative economic development, which is the expected result of the managerial decision-making freedom increase at the local level, the subnational formations’ financial self-sufficiency increase and more effective spending policy (expansion of the innovative projects financing amounts that will promote the sustainable economic growth). Systematization of the scientific works on the above problems proves that there is no one idea regarding the decentralization impact on the country’s economic and innovative development among scientists. That is why it is urgent to continue the empirical searching in this area, that will enable to take into account the dual nature of consequences regarding the activation of the decentralization processes. The empirical study is carried out through using of the non-linear analysis form of dependence (GLM regression, which enables to identify the linear and nonlinear character of the relationship between variables) based on the panel data, formed for set of 23 states-OECD members (Austria, Belgium, Canada, the Czech Republic, Denmark, Estonia, Finland, France Germany, Greece, Hungary, Italy, Netherlands, Norway, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden, Switzerland, Great Britain and the USA) during 2002-2015. The expenditure decentralization index, calculated as the ratio between the consolidated expenses amount at the subnational level and state consolidated expenses, expressed in parts of the whole, is chosen as the factorial variable model. The final variable (traditional for the economic growth models) is GDP per capita (dollars the USA). Besides, the set of control variables is added to this regression model (which explain the regularities of the resultative feature change and have a strong relationship with it). The control variables are selected on the basis of correlation analysis. The practical implementation of all stages in this research is performed using the software product Stata 12/SE. The results of the study confirm the non-linear character of dependence (the inverse U-shape) regarding the GDP change per capita on the expenditure decentralization level change, and also the maximum extremum of the function in the point with expenditure decentralization level 1.35. It means that excessive expenses load (above the specified norm) on the local budgets will be accompanied by inhibition of the innovative and economic dynamics, that should be taken into account by the relevant authorized executive bodies in investigation of the concrete measures regarding intergovernmental relationships reforming in direction of their decentralization, and in the formation of the well-balanced economic and innovative policies.
Financing local communities relies on a complex network of taxes, subsidies and loans. In the last decade the network has undergone numerous transformations .The reforms implanted in past years changed the systems of public finance substantially. Therefore, financial local autonomy is a term that frequently employed in the literature of federalism and decentralization, but it’s rarely defined conceptually in a careful way to empirical research. Generally it expresses the capacity of local communities to have their own revenue and expenditure budget, distinct from that of the state in which revenue can cover expenses incurred to meet their requirements. Indeed it is a highly valued feature of good governance. This paper is dedicated to a study in theory and practice. Starting with an overview on background of theoretical approach of local financial autonomy, then comparing the experiences of two European countries France, Italy and Morocco in the field. The purpose of this paper is to clarify the meaning of local financial autonomy and give a structured overview of the factors that may potentially influence the liberty of sub national authorities with regard of their own revenue and expenditure budget. Based on indicators and taking into account empirical evidences offered by official statistical datas, established in recent years for evaluating the position of administrative territorial units in relation to central government. The analyses prove that there is no universal model of local public finance applicable to all countries, because each has its own specific historical, cultural and linguistic particularities.
Nearly twenty-five years ago, the internet disrupted the world and started a new era of technological supremacy. Today, with the rise of cryptocurrencies and its underlying technology, we stand at the helm of another such revolution. Cryptocurrencies like bitcoin are decentralised, digital currencies relying on a peer-to-peer network which operates without the need for a third-party intermediary like the Reserve Bank of India. Coupled with lack of regulatory guidance, its unique technical aspects create huge complications in its taxation. While much ignorance still prevails in respect of cryptocurrencies, countries around the world have finally started taking notice and acting upon it. This paper focuses on what cryptocurrencies are, why they are important, and the prevailing regulatory structure concerning them. It overviews the complete landscape for taxation of cryptocurrencies like bitcoin, analysing the indirect and direct tax structure, particularly after the implementation of Central Goods and Services Tax Act, 2017, while also addressing the issues concerning the evasionary practices. The findings help in assessing the regulatory aspects in light of the technological, economic, social and financial forces, and establishing a set framework for taxation of cryptocurrencies.
It is well-known that competition for factors of production, including competition for residents, affects the public services provided in the communities. This paper considers the determination of local investment in urban transport systems. Many specialists question the effectiveness of the current U.S. top-to-bottom transportation institutional arrangement in which the federal government plays a dominant role and recommend a shift toward a decentralized organization. We examine how such a shift would affect the levels of transport investment. Specifically, we consider a model of two cities, and assume, as in Brueckner and Selod (2006), that transport systems are characterized by different time and money costs. We compare the outcomes reached when the transport system is decided by a central authority (a state or federal government) to the one decided by each jurisdiction in a decentralized way. In the latter case, city or local transportation authorities choose the system that maximizes residents? welfare, taking as given the decisions made elsewhere, essentially competing for residents (or workers). Our analysis shows that even though a shift toward a decentralized arrangement of the transportation system would generally lead to overinvestment (relative to the centralized case), the extent of this bias depends on the specific factors that drive transport authorities in deciding the transportation system, on the landownership structure, and on the financing arrangements in place. The paper also shows that, in a more general setup, when the two cities differ in their productivity levels, the more productive city will tend to overinvest in transportation systems that connect the two cities, and the less productive city will tend to underinvest in those systems.
Sustainable and inclusive growth in emerging Asian economies requires continued high levels of public sector investment in areas such as infrastructure, education, health, and social services. These responsibilities, especially with regard to infrastructure investment, need to be devolved increasingly to the regional government level. However, growth of sources of revenue and financing for local governments has not necessarily kept pace, forcing them, in some cases, to increase borrowing or cut spending below needed levels. This chapter reviews alternative models of the relationship between central and local governments, and provides an overview and assessment of different financing mechanisms for local governments, including tax revenues, central government transfers, bank loans, and bond issuance, with a focus on the context of emerging Asian economies. The chapter also reviews financing mechanisms for local governments and mechanisms for maintaining fiscal stability and sustainability at both the central and local government levels. Based upon the evidence on the decentralization process in Asia, it proposes some policy implications for improving central–local government relations and fiscal sustainability.
Without much preparation, Indonesia, in 2000, at a stroke replaced the previous system of centralized government and development planning with a wide range of decentralization programs. The reforms gave greater authority, political power, and financial resources directly to regencies and municipalities, bypassing the provinces. The powers transferred include those of executing a wide range of responsibilities in the areas of health, primary and middle-level education, public works, environment, communication, transport, agriculture, manufacturing, and other economic sectors. At the same time, the government replaced the antiquated cash-based, single-entry system of public finance with a modern double-entry accounting system that uses a single treasury account; is performance based; and has transparent management of the public treasury, tight expenditure and financial controls with performance indicators, computerized reporting, and a tightly scheduled auditing system. On the positive side, unlike in many developing and transition countries, the decentralization program in Indonesia has not caused major political or economic problems. However, the decentralization program was ill prepared and not carried out in a logical order for two reasons. First, the capacity of subnational governments to produce public and private goods, increase productivity and employment, and promote economic growth in their jurisdictions, was not increased. Because of the long tradition of centralization, local government never built the capacity to carry out economic planning and undertake initiatives to promote local economic growth. Before the reform, the local governments had mainly functioned as implementing agencies of national policies and programs. Second, the number of good financial managers, as required by the new laws of public treasury and auditing, was also limited and needed to be trained. The rising revenues of local governments do not follow their increasing government functions to promote economic development that could potentially cause fiscal imbalances.
Agung Ridwan, Syaparuddin Syaparuddin, Candra Mustika
This study aims to analyze: 1) sources of financing for fiscal decentralization, GRDP and poverty levels of regencies / cities in Jambi Province (2) the effect of sources of fiscal decentralization financing on gross domestic product in regencies and cities in Jambi Province (3) the effect of fiscal decentralization financing sources towards poverty levels in regencies and cities in Jambi Province. The analysis period is 2007 - 2013. To analyze the influence of the sources of fiscal decentralization funding on GRDP and poverty levels, using two panel data regression models. The results of the analysis found that: 1) During the 2007-2013 period, the sources of financing for fiscal decentralization consisting of Local Original Revenue, Balanced Funds and Other Other Income in regencies and cities in Jambi Province generally increased every year; 2) The GRDP regency-city growth in Jambi Province is fairly high with an average of 6.83%, higher than the national economic growth; 3) In general, the poverty rate of regencies/cities in Jambi Province has decreased significantly every year during the period 2007 – 2013. Original Regional Revenue and other legitimate income have a negative and significant effect while the balance fund does not have a significant effect on the poverty level of regencies/cities in Jambi Province.