The internationalization of capital markets that occurred during the era of the classical gold standard (1870-1914) was part of a broader set of trends that threatened to drain local markets from capital and channel that capital to the national financial center and, from there, toward other national financial centers. Still, internationalization was neither inevitable, uniform, nor irreversible but was a political choice informed by redistributional considerations between rival domestic interests and decided by politically dominant coalitions. The domestic institutional structure in each country determined the composition of the politically dominant coalition. Decentralized structures allowed potential losers to curb public policies favorable to capital market internationalization, whereas centralized structures allowed expected winners to promote such policies. As a result, economies with centralized states ended up being the most dependent on the international capital market, whereas economies with decentralized states took a less active part in the globalization of finance.
This article explains (1) the origins of central banking and (2) variations in the spread and durability of central banks across nations. Early central banks helped bind governments to honor their debts and thereby furthered governments' capacities to efficiently finance military expenditures. The origins of central banking are problematic because government credit-worthiness and efficient wartime fiscal policy are public goods, subject to the free-rider problem. Applying a variant of the joint-products model, I argue that governments offered private benefits (monopoly privileges) to select creditors to induce participation in central banks. To explain cross-national differences, I argue that the level of domestic political decentralization negatively affected the incidence and durability of central banking. Countries with decentralized political systems faced regulatory competition from strong local authorities as licensers of banking monopolies, making it difficult to adopt or sustain central banking. Qualitative and statistical evidence from Europe and the United States to about 1850 support the arguments.
This two-part paper provides a theoretical framework for appraising trade-offs between alternative methods of delegating authority over the delivery of public services, on the targeting and cost-effectiveness of public spending programs in developing countries. Authority over these programs has to be delegated owing to absence of information at the central level concerning local needs and costs of specific communities. In a top-down centralized system, this authority is delegated to bureaucrats by a central government that has limited ability to monitor their performance with respect to either service delivery or cost control. In a decentralized system, it is allocated instead to elected local governments or client groups, which may be subject to capture by local elites. Both systems are thus prone to local corruption and lack of accountability. Part 1 of the paper studies the relevant tradeoffs in the context of a poverty alleviation program, whose aim is to deliver a private merit good available on competitive markets to the poor. Decentralization generally dominates with respect to inter-community targeting as well as cost-effectiveness. However, the ranking of intracommunity targeting under the two systems is ambiguous, and depends on the relative degree of capture that local and national governments are prone to, besides the nature of uncertainty and preferences of the good by the nonpoor. Part 2 of the paper considers an infrastructure service provided by a public enterprise which has a natural monopoly. In this context it is shown that decentralization dominates if the following four conditions are satisfied: (i) local governments are not vulnerable to capture; (ii) local governments have access to adequate local financing sources; (iii) there are no interjurisdictional externalities in service provision; and (iv) local governments have all the bargaining power and access to relevant cost information vis-a-vis public enterprise managers. Absent any one of these institutional conditions, however, decentralization may perform worse than centralization. The Appendix develops a model of electoral competition (adapted from Grossman-Helpman (1996)) where parties are prone to capture by special interest groups, which helps identify some of the institutional determinants of the degree of capture of local and central governments.
The World Economic Outlook (WEO) exercise at the IMF evolved during the 1980s, partly in response to demands by policymakers in national finance ministries for objective and internationally comparable projections and policy scenarios. The exercise had begun as a staff initiative, encouraged by the Managing Director (Johannes Witteveen). Gradually, the Executive Board, the Interim Committee, the Group of Seven, and others came to view the discussion of the WEO documents as an important element in their efforts to keep abreast of world economic developments and prospects. Direct and indirect feedback from those discussions informed the staff as to how the exercise should be improved. Driven by this policy relevance, the WEO evolved from a decentralized project that was only haphazardly model-based into a more rigorous and coordinated exercise.
Financing Decentralized Expenditures presents new original research papers on the structure of intergovernmental fiscal relations in virtually all types of countries and the design and implementation of transfer mechanisms between different levels of government.
In this paper a competi tive general equilibrium model is used to investigate the welfare and long run allocation impacts of privatization. There are two types of capital in this model economy, one private and the other initially public ('infrastructure'), and a positive extemality due to the latter is assumed. A benevolent governrnent can improve upon decentralized allocation intemalizing the extemality, but it introduces distortions in the economy through the finance of its investments. It is shown that even making the best case for public action - maximization of individuais' welfare, no operation inefficiency and free supply to society of infrastructure services - privatization is welfare improving for a large set of economies. Hence, arguments against privatization based solely on under-investment are incorrect, as this maybe the optimal action when the financing of public investment are considered. When operation inefficiency is introduced in the public sector, gains from privatization are much higher and positive for most reasonable combinations of parameters.
While Washington has been unable to lead the way in significant health care reform, the health care system has begun to transform itself in terms of curbing skyrocketing health care costs, dealing with the more than forty million Americans who lack health care coverage, and the problems plaguing the Medicare and Medicaid systems. The search has begun for a health care model that ensures quality care to a wide population in a cost-efficient manner. This article explores how the U.S. Health care system currently functions, examines several innovative models, and suggests ways in which a decentralized, community-based approach to health care reform can address our nation’s health care crisis. Specifically, Part I examines the current system of health care financing. Part II discusses current efforts to provide community based care. Part III offers suggestions for a community-based approach to health care reform, including ways to stimulate provider volunteerism, financing mechanisms, and methods to overcome potential legal barriers to local reform efforts.
Open access
Health Systems, Economic Evaluations, Quality of Life
Lixin Colin Xu, Bob Cull, Joe Hotz, D. Gale Johnson · 5 authors
In moving toward a more market-oriented system, how did China's government and state enterprises partition control rights, incentives, and financial arrangements? In 1980, China's government owned and controlled its state enterprises, which were managed (inefficiently) by bureaucrats. During the 1980s, the government experimented with decentralizing state enterprises to boost productivity. By decade's end, China's state enterprises had become more market-oriented, and the structure of enterprise property rights had changed dramatically. One factor in the move toward a more market-oriented system was the use of performance contracts with incentive components to govern state enterprises. Xu examines how China's government and state enterprises partitioned property rights - how the government and enterprises decided about incentives, financial arrangements, and control rights. Xu assumes that the government is risk-neutral and the enterprise manager is risk-averse; that the government's goal is to increase revenue (or profitability), to retain maximum control of the firms, and to reduce the inequality of income across firms (by bailing out firms in financial trouble and collective heavier taxes on high-performing firms). The enterprise manager and employees, on the other hand, have an informational advantage over the government that allows them to earn a rent; that advantage leads to suboptimal efforts. Among Xu's findings: The government, in striving for equality, rewards inefficient firms while penalizing efficient ones (the so-called ratchet effect). Efficient firms are unwilling to reveal their true efficiency. They pretend to be inefficient by slacking, so they can get more transfers. There are inherent conflicts between two of the government's goals: Profitability and equality. And the government's desire to control state enterprises prevents many of them from becoming decentralized and improving their productivity. Capital-intensive firms depend more on bank loans and less on retained profits, probably reflecting both their greater need for capital and the banks' role in allocating investment funds. Larger firms rely more heavily on the government for investment, their managers have more autonomy, yet the firms are easier to control (it's easier to monitor 100 employees in one firm than to monitor one employee each in 100 firms). This paper - a product of the Finance and Private Sector Development Division, Policy Research Department - is part of a larger effort in the department to understand state-owned enterprise reforms and government behavior.
Government financing of schooling is necessitated by capital market imperfections. Governments are also res ponsible for maintaining a stock of public capital that enters private production function. In this paper the welfare implications and politics of these investments are examined in a version of Diamond (1965) growth model. It is argued that in decentralized environments where the working generation is decisive each period significant underinvestment in both schooling and in frastructure will be observed relative to the Ramsey equilibrium.
Estonian authorities have made remarkable progress in a relatively short period of time by putting into place the elements of a modern budget process and fiscal management system. This progress is especially notable given the difficult circumstances the country has gone through in the transition period of the last five years. The most significant changes in budgetary policy took place with the adoption of the Law on State Budget in June 1993. Several other pieces of legislation have come to complement the Budget Law including laws on local budgets, state external audit and the department of treasury. Other reforms have helped establish the basis of a modern fiscal management system. These include a monetary board assuring the independence of monetary policy from fiscal management and eliminating all possibilities of inflationary deficit financing, a well designed and impressively simple tax code, an overall well designed system of decentralized government, and the privatization of many state enterprises.However, there are still significant steps that need to be taken for making the government budget and the budget process itself effective instruments of fiscal management in Estonia. In some cases, the new budget institutions are at the early stages of development and appear fragile because of lack of resources or trained personnel and lack of tradition. In other cases, the proper institutions for fiscal management have not been developed or are lacking. Addressing these reform issues should significantly enhance the ability of the Government of Estonia to accomplish its objectives of macroeconomic stability, a more efficient allocation of public funds, and growth of the economy’s private sector.This report takes stock and evaluates the reforms in fiscal management already introduced, those scheduled for introduction, and those that the Government still should consider putting in place to accomplish an effective fiscal management system. Because they have been reviewed recently, this report does not discuss in depth existing budget institutions but instead puts emphasis on recent reform and highlights those problem areas where additional reforms will be necessary. The first section of the report provides a brief overview of the main accomplishments and failings of Estonia’s budget process and fiscal management system. The next three sections of the report review in more depth the three stages of the budget process: policy formulation, forecasting and budget preparation; budget execution and the ongoing effort to introduce a modern treasury function in the Ministry of Finance; and the institutions for budget compliance, namely internal and external ex-post audits and budget evaluation.
About the Internet, there have been a number of indications recently, that the use of electronic methods not only for expanding business or creating new business, but also for making payments, may introduce a new " industrial and monetary " order. This idea, (millenarianism ?) implies a large adoption of new technologies, of e-business opportunities and usages and finally, the resolution of e-payment problems, especially taking into account the Internet's characteristics (decentralization and aperture). These problems do not depend only on implementation of information's technologies, cryptography or network management. Because payments concern the core of the market's economy, the e-payment systems involve i) the monetary regime - i.e. forms and nature of money creation - and ii) agents qualified to create money. On these points, the emergence of e-payment systems is not anodyne, because it participates in the evolution of the actual monetary regime in the direction of a weakening between money supply, quantity of money and economy financing by bank's credit. It participates also in the evolution of the " banking industry " in the direction of a real disintermediation.
The paper reviews the theoretical basis for the application of user fees in the public health sector in low-income countries with particular reference to the special characteristics of medical care as a commodity. The general equilibrium efficiency result of the market mechanism is shown to be the theoretical justification for the financing of health services via a system of user charges. If markets for all goods and services exist, and are perfect in a very strict sense, the welfare outcome of the price mechanism cannot be improved upon by any other resource allocation device. Furthermore, the decentralized and impersonal nature of this mechanism renders it more convenient to use in the allocation of commodities, health care included, than its alternatives such as a system of centrally administered prices or a system of administrative controls and directives. However, since many of the assumptions of the price system are rarely met in actual situations, especially in the health sector, it should be applied with caution. In particular, problems of information asymmetry and consumption externalities in health care markets necessitate a simultaneous use of fees with government interventions in order for fees to achieve their often intended aim of efficiency and equity improvement in health care provision. The most important intervention of the government here is the enactment and enforcement of institutions that reduce costs of transacting in health care markets and that in addition facilitate the emergence of new markets such as the markets for medical insurance. A striking finding of the paper is that health services in low-income countries are best financed primarily by revenue from general taxation, supplemented by a system of moderate user fees. Since medical insurance markets are generally non-existent in low-income areas, it is argued that financing health services primarily through user fees in such areas would be inefficient and inequitable. However, to mitigate the moral hazard problem as well as the problem of the commons, both of which characterize publicly financed health care, imposition of modest user fees is required. The importance of fees in this proposal increases with economic growth and with evolution of institutions that facilitate market transactions. Strategic interaction among economic agents is shown to affect the structure and implementation of user fees. A game-theoretic analysis of the general problem of health care financing shows that this problem is best tackled by harnessing the efforts of households, private health care providers, the government and civil society. These entities form what might be called a winning coalition in health care financing game of society. It is argued that the government is better placed to provide an institutional framework for coordinating the efforts of the various players to the desired end.
Israel's ongoing health reform provides lessons regarding attempts to combine universal coverage under national health insurance with a version of managed competition. Based on principles of 'justice, equality and mutual aid," Israel's National Health Insurance Law, 1994 guarantees access to a broad basket of basic services to be provided by four competing sick funds, and the availability of resources adequate to finance the basket. The new rights of citizens to universal coverage and to move freely among sick funds constituted a major policy breakthrough. However, successive amendments to the Law reflect continuing controversy over the amount of resources required to finance the basic basket. Despite the intention to base the system on decentralization and competition, successive amendments have placed more control over health system finance and sick fund management in the hands of the Ministries of Finance and Health. Updating the basic basket to take account of new technologies and drugs has raised unresolved dilemmas. In the Israeli case the dialectic of management vs. competition and of government vs. market, obscures fundamental issues related to the right of citizens to health services. The process set in motion by adoption of The National Health Insurance Law, 1994 calls on public managers and politicians to design institutions which can set priorities within a limited budget and effectively regulate the health care system.
Richard Graham Halliday, A.L. Drasdo, Cynthia E. Lumley, Stuart Walker
A survey of 45 leading pharmaceutical companies has been used to investigate aspects of their Research and Development (R&D) strategies, the allocation of resources including the financing and staffing of R&D functions, and the numbers of New Chemical Entities (NCEs) in the development process. The companies included the top ten by R&D expenditure in 1992 (top 10 companies). The study identified characteristics of leading companies and provided comparative data. The principal findings are that: top ten companies had the highest R&D to sales ratios, progressed more NCEs after the drug candidate selection stage in 1992 and had achieved a greater geographical decentralization of staff than any other company. Japanese companies differed in some respects from western companies, even those of a similar size. They operated with smaller clinical and regulatory affairs functions and made detailed plans for R&D expenditure further ahead than western companies, on average, more than 5 years compared with 3 years. an increase in aggregated R&D staffing had occurred between 1990 and 1992 in 33 companies for which data for both years were available and staff numbers had decreased in only five of those companies. top ten companies differed from others in their apparent productivity measured in terms of staff or R&D expenditure per NCE after the drug candidate selection stage, utilizing more staff and having greater R&D expenditure per NCE. The results also appear to indicate early signs of a change in the structure of the industry according to R&D expenditure, which has since become more apparent. There was a distinct polarization by R&D budget size among the respondent companies: five companies were spending $900m or more on R&D in 1992 while the majority of the rest were spending less than a third of that amount.
This paper is the fruit of an attempt to distinguish the elements, present in a fiscal decentralization process, that are likely to contribute to efficiency enhancement in the provision of social services in developing countries. From the methodological point of view, the paper makes an effort, whenever possible, to isolate the economic from the political in the arguments for and against fiscal decentralization. These two sets of arguments, economic and political, both equally important, are often intermingled in the literature. The distinction between them may improve our understanding of the advantages and limitations of the selection of a 'decentralized' provision of social services. Although nearly all the aspects of the fiscal decentralization process may be of some relevance in terms of the issue of equitable social service provision, the paper tries to stress the need to provide adequate incentives to local bureaucracies through the design of transfers and through community participation.
Via regression analysis, this study is able to establish factors that impinge on per capita social sector expenditures. In addition, 32 out of the 62 provincial governments have allocated less on social sectors than what is needed to maintain their 1991 expenditure level in real terms. Inconsistencies regarding budget allocation of provincial governments on the social sectors and the objective indicators are detected.
This paper is intended to analyze, in a comparative perspective, the financing mechanisms of urban local governments in two groups of countries. The first group refers to a sample of OECD countries. They are rather decentralized, and have institutional features which date back many years from now. The scope of responsibilities faced by these countries. The second group is constituted by a number of Latin American countries. They are, in general, less decentralized and have the characteristic of not having a well established institutional structure. This has experienced various changes over the recent years, one of them being a process of transferring responsibilities to local tiers of governments, a tendency which in general, has not been accompanied by an increasing capacity to get resources neither from the central government nor from the local financial market.
The worldwide economic recession and the concomitant limited stock of finances have had an influence on the available money of every household and have also inhibited the improvement of socio-economic conditions and medicine. The Reconstruction and Development Programme (RDP) has the objective of improving the living conditions of the people with regard to housing, education, training and health care. The latter seems to be a major problem which has to be addressed with the emphasis on the preventive and promotional aspects of health care. A comprehensive health care system did not come into being property in the past because of the maldistribution of health care services, personnel and differences in culture and health care beliefs and values. The question that now arises, is how to render a quality health care service within the constraints of inadequate financing and resources. A comprehensive literature study has been done with reference to quality health care and financing followed by a survey of existing health services and finances. Recommendations are made about minimum requirements to be accepted if one were to adapt rather than die in terms of the provision of healthcare: the decentralization and rationalization of the administration of health care, the stress on and realization of effective and efficient primary health care, the acceptance of participative management in health providing organizations, the provision of financial management training for health care managers and the application of management accounting principles for the improvement of the efficiency and effectiveness of management.
OBJECTIVES: This paper reviews Russia's health crisis, financing, and organization and public health reform needs. METHODS: The structure, policy, supply of services, and health status indicators of Russia's health system are examined. RESULTS: Longevity is declining; mortality rates from cardiovascular diseases and trauma are high and rising; maternal and infant mortality are high. Vaccine-preventable diseases have reappeared in epidemic form. Nutrition status is problematic. CONCLUSIONS: The crisis relates to Russia's economic transition, but it also goes deep into the former Soviet health system. The epidemiologic transition from a predominance of infectious to noninfectious diseases was addressed by increasing the quantity of services. The health system lacked mechanisms for epidemiologic or economic analysis and accountability to the public. Policy and funding favored hospitals over ambulatory care and individual routine checkups over community-oriented preventive approaches. Reform since 1991 has centered on national health insurance and decentralized management of services. A national health strategy to address fundamental public health problems is recommended.
Robin Boadway, Isao Horiba, Raghbendra Jha, Boadway, Robin · 6 authors
It has realized since Pigou (1947) that if public goods are financed by distortionary taxation, the marginal social cost of providing the public good will exceed the actual resource cost by the marginal deadweight cost of taxation.
The Caiden and Wildavsky work of 1974 postulates a model of poverty-uncertainty: the governments of poor countries face disappearing and decremental budgets in financing public programs because of a lack of economic growth or poverty. The core argument is that economic development, as a critical variable, determines increments in budgeting practices. In other words, budgeting is incremental, and incremental budgeting results from the growth of GNP. This model has since become a set of principles with identifiable attributes to explain the budgetary processes in poor nations. \n \nThis study is about application of that model in China's budgeting. China has a unitary budget system. The central government used to draw most of its revenues from provinces and its budget includes those of 31 provinces. Provinces thus play a dual role of collecting revenues from within and remitting them to the center in the name of revenue sharing. In 1978 China decided to open to the world, reform its economy, and decentralize budget to provinces. But the original intent of decentralization was to give incentives so that provinces accumulate more resources for further central extraction. The decentralization, however, has led to fiscal decline not anticipated by the reformers.