This book addresses a variety of issues \n relating to intergovernmental finance and the provision and \n financing of local services including budgeting and \n financial management, the institutional framework for the \n conduct of intergovernmental relations, appropriate methods \n of service delivery in metropolitan agglomerations and \n remote rural areas, local government enterprises, user \n charges, property taxes, income and value-added taxes, \n natural resource taxes, and local business taxes. \n Throughout, the authors draw on experience both in Canada \n and in other decentralized countries and consider to varying \n extents the special problems facing Russia and other large \n transitional economies.
ACILITATING urban infrastructure development and promoting the growth of local capital markets are among the most important development objectives for Latin America.For the most part, however, multilateral development organizations such as the World Bank and the Inter-American Development Bank (IDB) have addressed these two development issues separately.Multilateral-sponsored infrastructure development initiatives have focused primarily on providing technical assistance, equity grants, and subsidized bank loans, while capital markets development initiatives have consisted largely of policy-based advising and advocacy of structural reforms.'This Note proposes the use of multilateral-sponsored, local-currency municipal bond insurance to the most credit-worthy Latin American municipalities as a more leveraged, holistic approach to promoting development.Of the few multilateral-sponsored credit guarantee programs that have been implemented, most are designed for private capital investments and, in limited circumstances, sovereign debt securities. 2 A multilateral-sponsored municipal bond insurance program could reduce municipalities' financing costs for specific projects and encourage decentralization within the region, while simultaneously promoting the growth of domestic capital markets by encouraging greater reliance on these markets by Latin *J.D.
There is increasing interest in fiscal decentralization in Peru as a mechanism to generate more involved decision-making at the subnational level. This is tempered with a continuing emphasis on overall fiscal stability. However, considerable work needs to be undertaken to define more clearly expenditure responsibilities and financing mechanisms that increase local accountability. In addition, a more transparent fiscal transfer system is needed, together with clarity in expenditure management at all levels of government. The paper suggests that a substantial work agenda is needed to extend the decentralization process with greater transparency.
This paper attempts to trace and find evidence for the linkages between the quality of governance, and development at the local level since the adoption of the fiscal decentralization policy in the Philippines in 1991. The concern since then over the links has been prompted by the observed persistent imbalances in local development - across and within regions - which many believe is due to the less than prudent exercise of the devolved powers and responsibilities - hence, low quality of local governance. To be sure, the decentralization has led to not a few innovations in local service delivery and financing, and in increased people's participation in local civic activities. However, the spread of innovation has been slow and there has been less than genuine participation in the mandated local special bodies. The uneven quality of local governance thus may have contributed to imbalanced regional growth. Evidence also indicate that the initial level of economic conditions determine the acceptable quality of local governance, which explains why certain poor areas remain in the vicious circle of penury and misgovernance. To help improve the quality of local governance, some policy inputs are suggested.
ABSTRACT Cross-country studies of education and economic prosperity often reach conflicting results when using growth rates as the measure of economic development. However, growth rates lack persistence over time and may not accurately measure long-term economic success over relatively short economic horizons. To overcome this potential specification problem, we estimate the relationship between key education variables and the capital to physical labor ratio. Using both cross-sectional and panel specifications, we find that both the primary-pupil–teacher ratio and decentralized education finance are associated with a larger capital to physical labor ratio. The relationship between human capital and expenditures, private education, and test scores are less robust.
Open access
Fiscal Policy and Economic Growth
Intergenerational and Educational Inequality Studies
In the last 40 years, in public finance the examination of spatial aspects of federalism and intergovernmental fiscal relations was dominated by allocative and distributional issues. Modern growth theory and complementary approaches lead to a shift in the research perspective. Against this background the paper discusses how the findings of modern growth theory can affect the design of intergovernmental fiscal relations. The results of this analysis can be summarized as follows: (1) the existence of a geographically different growth dynamic provides an additional justification for a decentralization of political competences. (2) To cover more exactly the regional economic backward and forward linkages, especially local government authorities should intensify their cooperative behavior. (3) From the perspective of economic growth, the equalizing effect of horizontal transfers between decentralized jurisdictions should be limited.
Decentralization of government with property tax financing is the standard recipe for public sector reform. Fiscal competition is assumed to stimulate efficiency and hold down the tax level. Property taxation offers additional incentives for efficiency. We study the incentive mechanisms involved using data for decentralized governments and in a setting where they can choose to have property taxation or not. The empirical analysis addresses whether fiscal competition and political control problems influence the choice of having property taxation. The results indicate that both incentive mechanisms are relevant and consequently support the standard advice. Fiscal competition generates a distinct geographic pattern in local taxation and political fragmentation seems to motivate property taxation to control common pool problems. The main methodological challenge handled concerns spatial interaction with discrete choice.
In the literature on the subject of economy there are three functions of public finance \ndescribed: stabilazing, redistributing and allocating. Effectiveness of realization of the abovementioned \nfunctions depends to a large extent on the political system of a given country, \nespecially on the degree to which it is decentralized. In the article the author embarks on an \nattempt to identify the advantages and disadvantages of decentralization of particular public \nfinance functions and in effect to show which of the functions can be more effectively realized \nby the central authorities and which of them can be decentralized that is transfered to the \nlocal authorities.
O trabalho discute, do ponto de vista economico, as vantagens e desvantagens que diferentes graus de centralizacao/descentralizacao fiscal e tributaria apresentam para um crescimento economico equilibrado. Para tanto, sao apresentadas as posicoes defendidas pelos centralistas e descentralistas, autores que, baseados nos resultados de suas pesquisas, tendem a se aproximar de um ou de outro polo, no continuum do sistema politico federalista, os primeiros sustentando a concentracao do poder de tributar e de gastar nas maos do governo central, e os ultimos defendendo a devolucao desses poderes ao nivel de governo o mais distante possivel do centro. O trabalho comeca apresentando as relacoes entre o Federalismo e as estruturas tributaria e fiscal; em seguida coloca a polemica entre as duas correntes mencionadas, concluindo com a indicacao dos temas de uma agenda de pesquisa voltada para o estabelecimento de uma estrutura fiscal e tributaria adequada aos paises em desenvolvimento, uma vez que muito da literatura sobre o tema esta voltada para os problemas dos paises desenvolvidos.Abstract This paper provides a discussion, in economic grounds, of the advantages and disadvantages that different degrees of fiscal and tax centralization/decentralization pose towards achieving a balanced economic growth. Accordingly, it introduces arguments and contentions of both centralist and decentralist authors. Based on their research outcomes they reveal a tendency towards a polarized position within the continuum of the political system of federalism. Whereas the former group sustains the concentration of taxation and spending powers at the federal level, the latter advocates the devolution of such powers to the level of government the most afar from the center. The paper starts presenting the relationships between Federalism and fiscal and tax structures; then it analyses the arguments posed by members of the two streams of thought and concludes proposing specific themes to compose a discussion agenda devised towards the institution of fiscal and tax structures specifically designed to fulfill particular characteristics of developing countries, given that most of the literature is based on the experience of developed countries. Key words: Public goods. Public finance. State and local taxation. State and local budget and expenditures. Intergovernmental relations. Federalism
The world is experiencing dramatic fiscal reconstruction in the socialist and (former) socialist countries and of continuing and fascinating evolution of government structure elsewhere. Being one of the fastest growing economies over the past nearly three decades, China seems deeply embracing this global mantra of power devolution in her effort to energize local economy that was suffocated in the highly constricted state-planning system. The literature of the Chinese central-local studies suggests that fiscal decentralization from the central government to provincial governments is a key institutional factor to explain Chinese economic success. However, the literature misses various lower levels of government in China. Has the fiscal power been eventually trickled down to them? This is the question addressed in this project. This project makes several contributions to the thriving Chinese central-local study. It brings back the missing local governments in the intergovernmental debate. By linking various local governments with the national government, the findings in this project help to draw a more comprehensive and holistic picture of the intergovernmental fiscal relations in China. Such a study on the evolution of fiscal structure among local governments also adds knowledge to understand the broad economic and administrative transformation in contemporary China. Using the latest datasets of public finance, this project performs a series of statistical analysis to understand if fiscal decentralization has taken place to each level of Chineselocal governments in the reform era. This project also tests the factors that have been widely identified in the classical welfare theory as explanative factors for the fiscal arrangement at different levels of local government. This project finds out that fiscal decentralization fails to capture the main trend of the intergovernmental fiscal relations at various Chinese local governments. Instead, there has been a rather consistent pattern of fiscal centralization across those local governments during the 1990s and the early 2000s.
For a variety of reasons, many developing countries especially since the 1990s have embarked on programmes of democratic decentralization that are aimed at creating local self-governing systems that are democratic, relatively autonomous and effective in delivering services.Finding independent sources of financing for these emerging, locally based organs of governance has been one of the central challenges that confront these efforts in most countries.The literature suggests that sources of independent local government revenue are few in poor countries.As a result, most countries design decentralization programmes that depend heavily on intergovernmental transfers from national to local governments.Given widespread poverty that exists in most developing countries, this is a crucial strategy.However, the problem is that many central governments are engulfed in a systemic financial crisis and are desperately exploring strategies for reducing their expenditure commitments.One outcome is that revenue transfers are often irregular or fall much below the levels of expenditure decentralization, leading to serious fiscal gaps at the local level.Even where transfers are adequate and reliable, a fiscal regime which compels local actors to depend so heavily on central financial arrangements for practically all of their expenditure requirements undermines the development of lateral (local state-citizen) rather than vertical (central-local state) relations within the state, with serious implications for public participation and effective accountability.In the meantime, cities of developing countries continue to grow phenomenally in a way that makes conventional strategies for financing urban infrastructures unsustainable.Many analysts view this rapid urbanization as fatally aggravating the problem of urban/local governance.This paper suggests a different and more positive view.It reviews the literature which concedes that property taxation remains largely untapped and might indeed be progressive in developing countries.This literature highlights mainly the technical constraints to progress-assessment, valuation and collection.In contrast, this paper contends that the tax suffers from a combination of political and technical factors where the latter are dependent not independent variables.The paper undertakes an analysis of the key stakeholders in implementing successful property taxation policies based on research conducted in four countries-India, Nigeria, Republic of South Africa and Zimbabwe in the early 1990s.The paper suggests that willingness, opportunity and capacity remain critical factors and demonstrates how opposition to the tax can be overcome by strategic partnerships between central and local governments, public and private and domestic and external actors.
This paper concerns redistribution and public good provision in an economic federation with two levels of government: a local government in each locality and a (first mover) central government. Each locality is characterized by two ability-types, and the ability-distribution differs across localities. The central government redistributes via a nonlinear income tax and a lump-sum transfer to each local government, while the local governments use proportional income taxes and provide local public goods. We show how the redistributive role of taxation is combined with a corrective role, and how the central government can implement the second best resource allocation. Copyright 2008 Blackwell Publishing, Inc..
Even in the wake of the most sweeping campaign finance reform law to be enacted in three decades, further significant reform is inevitable. Special interest money continues to flow through loopholes in the Act, and the Presidential Election Campaign Fund is near collapse. The next reform should encourage broader participation in the political process by individual citizens, both to dilute the power of special interests and to serve independent democratic values that recent Supreme Court jurisprudence has identified as vital to meaningful reform. We propose adopting a refundable tax credit of $100/taxpayer for political contributions to federal candidates and national parties; the credit would be targeted to lowerand middle-income Americans. A refundable tax credit is equivalent to giving each eligible citizen up to $100 annually to use for political contributions. We also present data about the relative importance of political contributions by special interests (corporate, labor and other PACs) and individuals that undermine many of the assumptions on which past reform has been based and that have not been discussed in the legal literature. The data clearly show that small contributions by individuals are the dominant source of money in campaigns, and that the influence of special interest money is subtle, appearing to “purchase” benefits like access, a place on the agenda, and minor policy details. Working from an accurate picture of who really pays for politics, and drawing from the experience at the federal and state levels with similar tax refund programs, we present the tax credit as a reform that is simple, easy to administer, and likely to improve political participation by average Americans. Thus, our proposal, unlike the complicated voucher plan with anonymity put forward by Ackerman and Ayres, is likely to be adopted by Congress; moreover, it will appeal to a bipartisan consensus because it mixes public funding with a decentralized allocation mechanism using a tax subsidy.
National governments often choose to delegate tasks and burdens to lower levels in a comprehensive system of administration. Local and regional governance thereby becomes an important factor in policy implementation. This paper focuses on the incentive problem that follows from such a delegation of competences to collect taxes and do lending at the local level in a multi-level geo-administrative system. The paper uses the Danish administrative system to illustrate the actual outcomes from such incentive problems. A two-step estimation procedure will be used to derive results on the importance of incentive problems in multi-level geo-administrative systems. Setting up elaborate administrative systems will introduce agency problems that lead to inefficiencies in both local and national governance.
Twelve years into the implementation of the Local Government Code of 1991, it is but opportune to assess how the key features of this landmark legislation has contributed to (or detracted from) achieving the balance between local autonomy and accountability. The literature on fiscal decentralization suggests that these two goals are not incompatible. In fact, real autonomy (in the sense of subnational governments being able to link their spending decisions with their revenue/tax decisions) promotes fiscal responsibility. In the context of the ongoing debate in the Philippines, however, local autonomy has been equated (by many LGUs officials) with the independence of LGUs from central government interference. As such, LGU officials have focused more on securing even higher levels of block grants in order to address the widely perceived vertical fiscal imbalance. However, closer scrutiny of the problem indicates that greater_x000D_ tax decentralization coupled with a well designed intergovernmental transfer system that includes elements of fiscal equalization and categorical grants conditional on the achievement of minimum service standards would better enhance the gains that are forthcoming from the decentralization process while minimizing the risks of macroinstability.
The distribution of competencies between the different levels of a federal system may have remarkable effects on economic growth, because mainly the regions of a country contribute to national economic development. Thus, a governments economic policy is reasonably shaped along regional lines. The theoretical discussion in economics focuses however on the efficiency aspects of a decentralized provision and financing of public services; rarely the argument is raised that decentralization or federalism increases growth through a higher ability of the political system to innovate and to carry out reforms. After a discussion of the theoretical arguments on federalism and growth, we address the empirical question in this paper how important the assignment of decision making competencies and the design of fiscal federalism are for economic development. Finally, on the basis of existing theoretical and empirical studies on economic growth and federalism, open questions and possible ways of answering them are presented.
Laura B. Rawlings, Lynne Sherburne-Benz, Julie Van Domelen
The study seeks to answer four questions that summarize the fundamental issues in the international debate about the capacity of social funds to improve beneficiaries' living conditions: o Do social funds reach poor areas and poor households? Do social funds deliver high-quality, sustainable investments? Do social funds affect living standards? How cost-efficient are social funds and the investments they finance, compared with other delivery mechanisms? The findings and lessons from this research reflect a specific moment in the evolution of six social funds and therefore may not fully predict the future impact of current investments. The evaluation assesses subprojects identified and implemented between 1993 and 1999, a period when longer-term objectives-such as increasing access to and utilization of basic services-began to supplant the funds' original emergency mandates. The time period selected allowed enough elapsed time following the implementation of the social fund subprojects to make measurement of impact and sustainability possible. The evaluation does not consider the effects of social fund projects on employment or on income generation-the original objectives of the first generation of social funds, which were introduced in Latin America. It also does not discuss the effect of social fund investments on capacity building-a more recent emphasis of social funds seeking to assist decentralization and community development.
Die Kompetenzverteilung zwischen den verschiedenen Gebietskörperschaftsebenen eines föderativen Staates kann sich erheblich auf das Wirtschaftswachstum auswirken, da es insbesondere die Regionen eines Landes sind, die zu seiner gesamten wirtschaftlichen Entwicklung beitragen. Dies legt einen regionalen Zuschnitt der staatlichen Wirtschaftspolitik nahe. Aus ökonomischer Sicht wird in der theoretischen Diskussion hingegen vornehmlich auf die Effizienzaspekte einer dezentralen Bereitstellung und die Finanzierung öffentlicher Leistungen abgehoben. Selten findet sich das Argument, dass Dezentralität oder Föderalismus – vermittelt über eine höhere Innovationsund Reformfähigkeit des politischen Systems – zu einer Steigerung des Wachstums führen. Nach einer Diskussion der theoretischen Überlegungen zu Föderalismus und Wachstum wenden wir uns in diesem Beitrag der empirischen Frage zu, welche Bedeutung die Zuordnung von Entscheidungskompetenzen und die institutionelle Ausgestaltung des fiskalischen Föderalismus für die wirtschaftliche Entwicklung eines Landes haben. Auf Basis der bisher existierenden theoretischen und empirischen Studien zu Wirtschaftswachstum und Föderalismus werden offene Fragen und mögliche Ansätze zu ihrer Beantwortung formuliert. <bold>Abstract</bold> The assignment of competencies in a federal state can have a strong impact on economic growth, because the regions of a country particularly contribute to its total economic development. Hence, public policy should be tailored to regional needs. Public economists however mainly focus on the efficiency of decentralized public goods provision and financing; seldom arguments concerning political innovation due to a decentralized experimentation of policies and its impact on economic growth are considered. After a discussion of theoretical arguments on federalism and economic growth, the empirical question is addressed in this paper whether the assignment of autonomy and the institutional design of fiscal federalism influence economic development of a country. On this basis, open question and potential routes of research are formulated.
Edward W. Hill, Billie K. Geyer, Claudette Robey, John F. Brennan · 5 authors
This paper investigates the transportation expenditure geographic pattern in Ohio from 1980 to 1988. It focuses on the location and spatial patterns of state transportation spending and finance. It then compares these variables with transportation need and demand indicators. The aim of the report is to ascertain whether or not the state's transportation money is being spent appropriately to meet the many challengers occurring today in metropolitan areas. Some of these challenges include traffic congestion, aging infrastructure, and decentralizing economic development.