Published as: Jorge Martinez and Paul Smoke. Conclusion in <em>Local Government Finance: The Challenges of the 21st Century. </em>United Cities and Local Governments' Second Global Report on Decentralization and Local Democracy, Barcelona 2010.Edward Elgar, 2011. (c) United Cities and Local Governments. Published by <a href="http://www.e-elgar.co.uk/">Edward Elgar</a>. Posted with the permission of the publisher for personal use only.
Bulgaria is one of the first countries from the former socialist block, which adopted a new democratic Constitution as early as 1991. The Constitution affirms the model of modern democratic state and outlines the principle of decentralization, admitting the right of self-government to the municipalities. Development of the legal frame of the local self-government and the enlargement of its functions, including the regulation of the financial independence of the municipalities, was accepted as a good perspective for further development of the local self-government. \n \nBased on the above the paper analyses: \n⢠Political, administrative and financial decentralization in Bulgaria as an integral part of the process of making public institutions more efficient, responsive and accountable to citizens; \n⢠Historical background of the decentralization process - undertaken reforms; adoption of legal texts; Constitutional amendment for providing local authorities with taxation powers; establishment of a joint Working Group on Financial Decentralization; adoption of a Concept and a Program for Financial Decentralization; creation of a system of incentives which target higher local revenues, consolidated financial management potential, and maximum level of local autonomy to determine the type, scope and provision of municipal services; division of municipal budget financed public services into two groups (state delegated and local); development of Strategy for decentralization and a Program for its implementation; \n⢠The impact of national and international (Council of Europe, European Commission) institutions and NGOâs on the decentralization process. \n \nThe purpose of the paper is not only to reveal the past reforms, but to stress on the present results and to examine the intergovernmental fiscal relations and local financial management. Unfortunately despite the positive changes, made in the first years after the period of centralized economy and governance, nowadays the local finance system is almost unchanged. Some of the ascertained problems might be summarized in the following: \n \n- Presence of permanent structural deficit in the municipal budgets, caused by the discrepancy between expenditure responsibilities and the income base; \n- Complicated, non-transparent and frequently changing transfer system; \n- Insufficient financing of delegated responsibilities; \n- Reduction of the recourses for municipal investments. \n \nThe experience in our country shows that a number of former decisions and initial intentions in the sphere of decentralization end with stabilization of the centralization. In this respect the paper searches arguments, connected with the reasons for the above described situation â is it a result from: \n⢠the unpreparedness of local government institutions and local stakeholders to operate in a reformed environment and the limited capacity to design, implement and monitor decentralization policies; \n⢠or from the wish for realizing a lot of changes for very short period of time; \n⢠or the reason is in the lack of political will.
The paper presents the current state of the process of agencification in Croatia, pointing out both the process and the institutional design. The agency model in Croatia consists of several types of more or less autonomous administrative organizations, situated at different distances from the central government. The most evident pressures for agencification come from decentralization, managerial responses and Europeanization. The reversal of the process in recent years has mostly happened because of the need for rationalization of the public administration system, which is also under pressure because of the economic crisis. The key problems of the agency model are over politicization on the one hand, and insufficient and inadequate control on the other. The adequate legal framework for agencies would enhance institutionalization of the agency model, ensuring effectiveness and legal certainty and maintaining a sufficient level of independence.
Published as: Jorge Martinez and Paul Smoke. Introduction in <em>Local Government Finance: The Challenges of the 21st Century. </em>United Cities and Local Governments' Second Global Report on Decentralization and Local Democracy, Barcelona 2010.Edward Elgar, 2011. (c) United Cities and Local Governments. Published by <a href="http://www.e-elgar.co.uk/">Edward Elgar</a>. Posted with the permission of the publisher for personal use only.
Claudia Dziobek, Miguel Alves, Majdeline El Rayess, Carlos Alberto Gutierrez Mangas ¡ 5 authors
A useful but little known feature of the IMFâs Government Finance Statistics Yearbook (GFSY) is the information on the structure of governments. Institutional tables, included in the GFSY, provide detail on the central, state, and local levels of governments, social security, and extrabudgetary units. We refer to the main levels of government as GL1, GL2, and GL3 in ascending order of institutional coverage. We present maps of the various levels of government for 74 countries to illustrate the usefulness of this database and make it more accessible to users. The maps provide information about how centralized or decentralized government finances and employment are and their size relative to the overall economy. Government map data facilitate the monitoring of fiscal policy and fiscal rules.
The Croatian âdecentralization packageâ from mid-2001 has shown how multiple pressures for shifting power to the local level may actually result in relative failure. The central government has ceded the control in particular policy sectors by shifting responsibilities for certain educational, welfare and health services to the counties and municipalities. However, the decentralization initiative was excessively marked as very limited and strongly labeled by the vertical policy dimension, expressing the dominance of top-down incentives of the central government in comparison to bottom-up initiatives stemming from the local government units. The 2001 decentralized package did not substantially increase the portion of local governments finance in total public finance, showing a failure to provide local government units with stronger fiscal capacity. The central government bodies also did not take into account the alternative proposals made by various policy actors ranging from academic institutions, researchers in NGOs, and associations of local government organizations. All these things have contributed to a relatively negligible influence of the horizontal policy dimension on the decentralization outcome. The whole process can therefore be described as centrally controlled decentralization, or decentralization from above.
One of the fundamental tenets of fiscal federalism is that, absent various sorts of externalities, decentralized governments that rely on own-source revenues should be more fiscally efficient than decentralized governments that rely on grant financing. The argument relies in part on the idea that sub-national governments, being closer to the people, are more accountable to its citizens. Accountability to citizens is also important in understanding the presence of corruption in government. This suggests that the financial structure and institutions of decentralized governments can potentially influence the degree and extent of corrupt activity. Financial structures that make governments more accountable should be associated with less corruption (other things equal), while financial structures with less accountability should be associated with more corrupt activities. We develop a simple model in which the use of grants rather than locally raised taxes increases corruption. We then use a panel data set of Mexican states to study the relationship between funding sources for Mexican states and the level of corruption in those states. We find that greater use of own tax revenues lowers corruption while greater use of grants increases corruption. This suggests that expenditure decentralization that is accompanied by revenue decentralization is likely to discourage corruption while expenditure decentralization that is funded by grants tends to encourage corruption. We also find that poverty, a measure of uninformed citizens, leads to greater corruption.
Bernard Bashaasha, Margaret Najjingo Mangheni, Ephraim Nkonya
Uganda introduced the decentralization policy in 1997 under the Local Government Act of 1997 that has since undergone four amendments. The policy inherently decentralized service delivery institutions and their governance in order to improve access to services for the rural poor. Based on an analysis of available literature, the paper documents the state of knowledge regarding rural service provision in Uganda under decentralization and identifies knowledge gaps for further investigation. Its focus is on education, health, and agricultural advisory services, as well as the management of natural resources in Uganda. Although enlightening, a review of the broader decentralization literature is beyond the scope of this work. The analysis revealed that results in terms of attaining the objectives of decentralization are mixed. While as anticipated generally decentralization resulted in greater participation and control over service delivery and governance by local communities, local governments are still grappling with a range of challenges, namely, inadequate local financial resources and over-reliance on conditional central government grants; inability to attract and retain sufficient trained and experienced staff; corruption, nepotism, and elite capture. With regard to the specific services, while universal primary education (UPE) policy under the decentralization framework is credited with a dramatic increase in primary school enrollment, public primary education services are still dogged by concerns over financing, equity, quality, and the need for curriculum reform. Some studies show that there has been no improvement in health services with many health status indicators either stagnating or worsening. In general, decentralization of education and health services has not resulted in greater participation of the ordinary people and accountability of service providers to the community. Regarding agricultural extension and advisory services, except for areas serviced by NGOs, the majority of the country does not readily access extension services, because districts have been unable to prioritize the operational expenses. However, there is some evidence that the devolution of responsibility for natural resource management (NRM) has contributed to greater compliance with some NRM requirements in some areas while in other areas forest conditions have declined following decentralization. Generally, evidence on whether decentralization has improved service delivery in Uganda is still inconclusive, and more research is needed.
Claudia Dziobek, Carlos Alberto Gutierrez Mangas, Phebby Kufa
Conventional wisdom postulates that there are benefits from decentralizing government finances but there is little empirical evidence about actual country practices. This paper presents data on fiscal decentralization for about 80 countries over a period of about 20 years (1990 - 2008) from the IMFâs Government Finance Statistics Yearbook (GFSY), the only global database with fiscal data for several levels of government. The data show that in many countries, revenue collection remains relatively more centralized than expenditures and that employment tends to be concentrated in lower levels of government. Except for transition economies, the levels of decentralization are relatively stable over the time period. The findings are shown by degree of economic development, constitutional power arrangements, and geographic area, broadly confirming key factors identified in the literature as determining the extent of fiscal decentralization.
The research theme is important for the local economy and financial literature on local public finance. It is known that the tax base of the territories is quite uneven and providing quality public services is impossible based on their own sources. The support for less developed local public administration from the financial point of view requires fiscal decentralization and involves financial equalization procedures or other similar measures aimed at eliminating the effect of unequal distribution for potential funding sources. Financial equalization is a group of financial actions made in order to overcome economic and fiscal disparities between territories. The purpose of financial equalization is the additional funding of less developed territories in order to reduce regional disparities. Key words: financial equalization, fiscal decentralization, inter-budgetary
By autonomy, most of resources that managed by central government becomes managed by local government. By decentralization, services to the society will be more efficient and effectively. This paper will analyze how far the response of local income because of change in Gross Regional Domestic Product (GRDP,) and also the ability of regional finance in regional autonomy era. The result of this paper shows that the coefficient of elasticity of regional income more than one, it means that if Gross Regional Domestic Product (GRDP) increase one percent, it will increases local income more than one percent. The role of domestic income to local income decrease, it means that the local government has to look for a forward alternative how lo increases the role of domestic income to local income.
A recent trend in decentralization in \n several large and diverse countries is the creation of local \n jurisdictions below the regional level -- municipalities, \n towns, and villages -- whose spending is almost exclusively \n financed by grants from both regional and national \n governments. This paper argues that such grants-financed \n decentralization enables politicians to target benefits to \n pivotal voters and organized interest groups in exchange for \n political support. Decentralization, in this model, is \n subject to political capture, facilitating vote-buying, \n patronage, or pork-barrel projects, at the expense of \n effective provision of broad public goods. There is \n anecdotal evidence on local politics in several large \n countries that is consistent with this theory. The paper \n explores its implications for international development \n programs in support of decentralization.
In this paper, we consider the effects of the 2003 local government reform (Law 131) on the budgetary systems of local governments in Russia, paying special attention to the allocation of functions and tax resources between different levels of government. An evaluation based on the standard theory of fiscal federalism and an international comparison indicated that Russia's institutional characteristics exhibit two parallel and contradictory tendencies. On the one hand, they tend to normalize according to the theory of public finance, but, on the other hand, the administrative and budgetary systems become centralized, which contradicts the global trend of decentralization.
Rural local governments in India provide essential services to over 70 percent of the national population. Yet, little is known about the efficacy of the financing system that supports these local governments, nor is there a fiscal information system that will allow a tracking of rural local government expenditures and revenues. In this article, we describe the role of rural local governments in India's; federal system, and use a database, newly gathered for West Bengal State, to present an analysis of rural local government financing patterns. We find that expenditures are significantly higher in less populated and more backward gram panchayats. At the margin, however, higher rates of literacy also are associated with higher levels of spending, suggesting an education effect.
Alina Profiroiu, Tudorel Andrei, Marian Nica, Elena Daniela ĹTEFÄNESCU
The reform process of the state and implicitly of the public administration was a priority for the past governments of Romania. During 2004- 2009, within the reform process, the main actors involved in the coordination, implementation and monitoring of reform measures were: the Prime Minister, the Superior Council for Public Administration Reform, Public Policy Coordination and Structural Adjustment, the Ministry of Public Finance, the General Secretariat of Government, Ministry of Administration and Interior (renamed for a short time Ministry of Interior and Administrative Reform), the Central Unit for Public Administration Reform, National Institute of Administration, the National Agency of Civil Servants, and the National Modernizers Network. For evaluation of aspects related to the reform process it was designed a selective research within the members of the National Modernizers Network, for assessing their perception of the public administration reform undertaken by the institutions presented above. Evaluating their opinion can be an important point in the revitalization of the area of the administration reform process. Also, the research conducted aimed at assessing the degree of modernizersâ involvement in activities related to important aspects of the reform process: strategic planning, formulating and evaluating public policies, financial management, human resources management, decentralization, introduction of new information and communication technologies and administrative simplification.
Government spending on health has grown as a percent of GDP over the last 40 years in industrialized countries. Widespread decentralization of healthcare systems has often accompanied this increase in spending. In this paper, we explore the effect of soft budget constraints on subnational health spending in a sample of OECD countries. We find countries where subnational governments rely primarily on central government financing and enjoy large borrowing autonomy have higher healthcare spending than those with more restrictions on subnational government borrowing.
Well known for its centralized local economic system under the national equity principle, Japan has experimented with transforming this regional redistribution system into a new local economic system of governance for more autonomous local economic growth over the past decade. This new local economic governance has been characterized by the increasing involvement of social actors, such as large private corporations and local communities, in policy processes.This dissertation reveals that new local economic growth strategies for the new local economic governance have operated under very different models in different regions of Japan, although all new local programs have been introduced under the banner of public-private partnership. New partnership programs in the local economic policy arena in the 2000s have moved toward the market model, in which local authorities pursue growth by attracting international business resources, in the major metropolitan areas around Tokyo, Osaka, and Nagoya, whereas they have moved toward the community model, in which local authorities purge growth by mobilizing local organizational resources, in the rest of Japan. The market model is embedded in market reform for deregulation that makes large private corporations' freer activities easy, whereas the community model is an attempt to strengthen the structure of endogenous networks among local authorities and local economic and social elites.This dissertation highlights two variables to explain regional variations of local economic growth strategies: dual local economic structures and diverging politico-economic coalitions. First, under the rule of Koizumi Junichiro, a coalition of promoting market reform among neoliberal politicians and large private corporations has won politically over a coalition for maintaining national equity among politicians embedded in traditional conservative center-local linkages, local business groups, and local leadership of underdeveloped areas, in national politics. The regional redistribution mechanism stopped functioning in this political choice. Instead, market reform and local community participation have been introduced as alternatives to regional redistribution mechanisms. Second, the major metropolitan areas and other underdeveloped areas, which came to stand on equal conditions for autonomous local economic growth strategies under decentralization reforms, are characterized by different situations in attracting private investment. The competitive regions of the major metropolitan areas have taken the market model as their main local economic growth strategy because they are competitive to attract private investment. In contrast, the protected regions outside the major metropolitan areas have taken the community model as their key local economic growth strategy because they have less competitive local economic structure of fading industries and scare population for attracting private investment.Over the past decade, reforms for public-private partnership in the local economic policy arena resulted in the disturbance of the Japanese way of balancing market powers and local interests in the postwar period. In the postwar period, the centralized regional redistribution mechanism, led by national politicians and central bureaucracies, functioned as a tool for social integration with consideration for national equity. However, experiments with the new form of local economic governance were not successful in balancing market reform with local community mobilization. The mobilization of local community resources could not match the political role of the regional redistribution mechanism outside the major metropolitan areas. In addition, market reform, which has been more effective in the advanced major metropolitan areas, has produced increasing regional economic disparity. Japan has faced a complicated stand-off between large private corporations detached from specific localities and local communities locked in place, which were connected by national political coordination mechanisms in the postwar period. Although each of two diverging local economic growth strategies has been effective in different regions, there was no national political mechanism for mediating local variations of these localized programs in the 2000s.
Fiscal federalism has been an important topic among public finance theorists in the last four decades. There is a series of arguments that decentralization of governments enhances growth by improving allocation efficiency. However, the empirical studies have shown mixed results for industrialized and developing countries and some of them have demonstrated that there might be a threshold level of economic development below which decentralization is not effective. Developing and transition countries have developed a variety of forms of fiscal decentralization as a possible strategy to achieve effective and efficient governmental structures. A generalized principle of decentralization due to the country specific circumstances does not exist. Therefore, decentralization has taken place in different forms in various countries at different times, and even exactly the same extent of decentralization may have had different impacts under different conditions. The purpose of this study is to investigate the current state of the fiscal decentralization in Mongolia and to develop policy recommendations for the efficient and effective intergovernmental fiscal relations system for Mongolia. Within this perspective the analysis concentrates on the scope and structure of the public sector, the expenditure and revenue assignment as well as on the design of the intergovernmental transfer and sub-national borrowing. The study is based on data for twenty-one provinces and the capital city of Mongolia for the period from 2000 to 2009. As a former socialist country Mongolia has had a highly centralized governmental sector. The result of the analysis below revealed that the Mongolia has introduced a number of decentralization measures, which followed a top down approach and were slowly implemented without any integrated decentralization strategy in the last decade. As a result Mongolia became de-concentrated state with fiscal centralization. The revenue assignment is lacking a very important element, for instance significant revenue autonomy given to sub-national governments, which is vital for the efficient service delivery at the local level. According to the current assignments of the expenditure and revenue responsibilities most of the provinces are unable to provide a certain national standard of public goods supply. Hence, intergovernmental transfers from the central jurisdiction to the sub-national jurisdictions play an important role for the equalization of the vertical and horizontal imbalances in Mongolia. The critical problem associated with intergovernmental transfers is that there is not a stable, predictable and transparent system of transfer allocation. The amount of transfers to sub-national governments is determined largely by political decisions on ad hoc basis and disregards local differences in needs and fiscal capacity. Thus a fiscal equalization system based on the fiscal needs of the provinces should be implemented. The equalization transfers will at least partly offset the regional disparities in revenues and enable the sub-national governments to provide a national minimum standard of local public goods.
Tax increment financing (TIF) is the most widely used local government program for financing economic development in the United States, but the proliferation of TIF is puzzling. TIF was originally created to support urban renewal programs and was narrowly focused on addressing urban blight, yet now it is used in areas that are plainly unblighted. TIF brings in no outside money and provides no new revenue-raising authority. There is little clear evidence that TIF has done much to help the municipalities that use it, and it is also a source of intergovernmental tension and a site of conflict over the scope of public aid to the private sector. Yet, the expansion of TIF makes sense in light of the basic structure of American local government law. Studying TIF can illuminate central features of our local government system. TIF succeeds -- in the sense of its widespread adoption and use -- because it, like local government more generally, is highly decentralized; reflects and reinforces the fiscalization of development policy; plays off the fragmentation of local governments and the resulting interlocal struggle for investment; and fits well with the entrepreneurial spirit characteristic of contemporary local economic development policy. A better understanding of TIF contributes to a better understanding of the political economy of American local government.
The essay provides support to the hypothesis that financing of provincial public spending through national transferences leads to overspending. We rest on persuasive economic and politicoinstitutional arguments. Fiscal illusion and the Leviathan model help to explain the overspending. And cartelization of tax collection helps to explain why governors are so reluctant to decentralize this task. We conclude that a fiscal organization closer to that of a confederation would be desirable. Two ways of organizing fiscal relations between the Nation and the provinces are considered. One way consists of paying for national spending by means of periodic provincial transferences; control of public spending by tax-payers would be the greatest possible in this scenario, though leaving national financing in provincial hands could be a risky affair. Another way consists of allowing the Nation some taxing power and incorporating constitutional restrictions as regards the kinds of public goods the national government is permitted to provide.
The European Union (EU) is built on the federalist principle of subsidiarity, which we consider in the policy field of financial reporting. We attempt to answer the question, whether the current accounting regulation in Europe is sensibly balanced between centralized and decentralized decision making. Drawing on comparative accounting research to identify criteria for âlocal preferences,â we conclude that local solutions currently remain preferable for small and medium-sized companies. For them, a centralized solution would result in additional costs for at least some member states and their residents. Large international firms, in contrast, face an increasingly integrated capital market and rather need a central solution as currently implemented by the EU. However, recent developments in corporate finance may align local preferences on accountancy in the future.