Intergovernmental fiscal transfer is a pillar of fiscal decentralization initiatives in developing and transition economies. These transfers serve several functions that include: correcting the vertical and the horizontal fiscal balances, compensating or offsetting for the spill-overs or externalities between different jurisdictions, funding national priorities and administrative priorities and capacities of the national. However, SNGs in developing countries particularly in Sub-saharan Africa is struggling with fiscal decentralization initiatives due to the lowered potential of local revenue generation. Due to these gaps in studies on Intergovernmental Fiscal Transfers (IGFT) in devolved government structures, the study evaluated how IGFT is organized and structured in Kenya. The study adopted a descriptive design and undertook a review of publicly available data which was supported by interviews of selected directors from the budget, finance and planning departments in three county governments of Baringo, Kiambu and Vihiga. The study established that intergovernmental fiscal transfers make up 87 per cent of SNG revenues, equalization fund is about 2 per cent while own source revenues make up 10 per cent. Other revenue sources are conditional transfers in form of ad hoc and cost-reimbursement approaches from both the national government and development partners. Regarding intergovernmental fiscal transfers, the national government should disburse funds in a timely and efficient manner to enable county governments to fulfil their mandates. The study makes the following conclusions; there is an overreliance on intergovernmental fiscal transfers by SNGs and this might constrain their capacity to provide services and impede devolution initiatives; the formula-based unconditional grant in Kenya offers great prospects for devolution and the rise in unconditional transfers portends well for SNGs. The study recommends that SNGs speed up the legal mechanism for identifying and classifying and assigning local revenues, the national government should consider introducing or substituting fiscal transfers with the tax-sharing arrangement to incentivize revenue diversification among SNGs and lastly, SNGs should consider pooling of resources to incorporate special purpose vehicles for sub-national government borrowing. The study contributes to the existing knowledge by delving more into the elements of fiscal decentralization and in particular intergovernmental fiscal transfers. Recommendations for further studies include studies on how other elements of decentralization impact the performance of the counties, how decentralization is improving governance at the local level and how the East African Community may affect governance and service delivery at the sub-national levels.
Decentralization of infrastructure responsibility to subnational governments and the immense needs of infrastructure financing argue for expanding subnational borrowing responsibly. India, Indonesia, the People's Republic of China, and the Philippines embarked on developing their subnational debt market at differing paces and progresses. The transition to market-based financing is path dependent, requiring sequencing of reforms. Moral hazard is inherent in subnational borrowing for both borrowers and lenders. Subnational borrowing also intertwines with the intergovernmental fiscal system, which prescribes the division of spending, revenues, and deficit financing among tiers of government. Linking borrowing to debt-service revenues and allowing fiscal space for subnational government borrowing are paramount. The challenges facing subnational governments from COVID-19 are similar to those from other macroeconomic shocks. A long-term view is required as to the allocation of fiscal space between sovereign and subsovereign. Financial transparency is key as markets need to digest comprehensive information to appropriately price risks.
We develop a model of property taxation and characterize equilibria under three alternative taxation regimes often used in the public finance literature: decentralized taxation, centralized taxation, and “rent seeking” regimes. We show that decentralized taxation results in inefficiently high tax rates, whereas centralized taxation yields a common optimal tax rate, and tax rates in the rent-seeking regime can be either inefficiently high or low. We quantify the effects of switching from the observed tax system to the three regimes for Japan and Germany. The decentralized or rent-seeking regime best describes the Japanese tax system, whereas the centralized regime does so for Germany. We also quantify the welfare effects of regime changes.
Introduction. Modern pandemic threats, military-political tensions and conflicts, foreign economic risks, trade wars, financial imbalances encourage the EU countries to group and agglomerate financial potentials in the vertical and horizontal planes. There is a need to study the paradox of what role in this agglomeration is played by the mastery of using the principles of fiscal federalism, tested by a number of both unitary states and federal republics of the European continent. The purpose of the article is to monitor the main determinants of fiscal federalism in increasing the financial potential of the member states of the European Union. Method (methodology). In the course of the research, the following methods were used: dialectical, correlational, generalization, comparison, system analysis, observation, induction and deduction. The results. The article highlights the importance and place of fiscal federalism in the architecture of the financial policy of the European Union. Pragmatic aspects of financing public services in the member states of the European Union have been studied. This made it possible to identify active recipients in the field of attracting financial resources to ensure the priority needs of economic development. It is emphasized that the functional direction of general public spending in the European Union was aimed more at social protection and health care, and to a lesser extent at environmental protection and development of the housing and communal sphere. It has been established that most of the member states of the European Union combine the principles of centralization, federalism, and decentralization (in most cases) in their fiscal doctrine, but there are also clear systems of classical fiscal federalism (Germany, Switzerland). The European approach emphasizes that a secondary effect of globalization is excessive tax optimization, because the functioning of the integrated market makes tax evasion more attractive. An assessment of the influence of key parameters of fiscal federalism on the functioning of centralized and decentralized models of financial policy was carried out. This made it possible to identify the level of influence of the determinants of fiscal federalism on the relevant model through the prism of distinct factors. It is summarized that the use of determinants of fiscal federalism in the financial policy of the European Union is able to strengthen the budgetary and tax effects, which in the final (transformed) vector will lead to a strengthening of the economy and improvement of social standards both in the member states of the union and in individual municipal entities.
Under the fiscal decentralization system, China has implemented a central and provincial management system. Colleges and universities are divided into central and local colleges and universities. At present, local higher education is facing the dilemma of insufficient investment. The reasons are mainly reflected in three aspects: first, the inherent defects of China's fiscal decentralization system restrict the attention of local governments to the higher education needs of local residents; Second, the speed of local economic development can not keep up with the rapid development of the scale of local higher education, resulting in the lack of financial resources for local governments to invest in higher education;, The third is the game of local governments in the direction of financial investment under the fiscal decentralization system, which leads to the reluctance of local governments to invest funds in the field of higher education. We believe that in order to alleviate the plight of insufficient investment in local higher education, we should promote the decentralization reform of higher education investment system; The local government should establish a scientific view of political achievements, improve the understanding of the importance of higher education, and speed up the financial allocation to local colleges and universities; Mobilize non-public resources to invest in local higher education and broaden the financing channels of local colleges and universities.
Grassroots corruption is one of the difficult problems in grass-roots governance. At present, local government continues to decentralize power to grassroots departments, and a large number of public services and public goods are provided by the grass-roots governments, match with public finances. However, with the expansion of the scale of public finance expenditure at the grass-roots level, it should be especially vigilant about the ineffective expansion caused by the corruption at the grass-roots level. This paper aims to explore the logical relationship between grassroots corruption and fiscal expenditure through literature review, and then put forward some suggestions.
In the article the state, trends and features of financing environmental measures by local budgets in Ukraine in order to justify the possibility of increasing the effectiveness of local communities expenditures on environmental protection were investigated. To this end, an analysis of local government expenditures, including budget environmental programs, the structure and dynamics of environmental tax revenues to the general and special funds of state and local budgets from 2010 through 2020 were analyzed. The distribution of environmental expenditures between state and local budgets, the financing mechanism for environmental protection and the mechanism of providing the local environmental fund have been studied. According to the results of the analysis, it was shown that in the conditions of decentralization, the volume of local financing of environmental measures has increased. However, a significant part (over 50%) of environmental funds was directed to non-priority goals and activities. The share of expenditures of the Environmental Protection Fund for the implementation of definitely environmental measures was low. This does not contribute to solving current environmental problems and does not increase the capacity of local budgets in terms of environmental expenditures. Significant (over 60%) centralization of the environmental tax revenues in the state budget creates unfavorable conditions for the ecological sustainability of some regions. It was established that the main function of the environmental tax – compensatory – is not fully fulfilled. The environmental tax was mainly directed to the implementation of the general functions of the state and territorial communities. In order to increase the efficiency of local budget expenditures on environmental protection, it is necessary to develop criteria for assessing the impact of environmental measures, normative definition of mandatory environmental effects in budget programs and strengthen state financial control over the targeted use of local budget funds.
Jan 1, 2022·Proceedings of the ... Annual Hawaii International Conference on System Sciences/Proceedings of the Annual Hawaii International Conference on System Sciences
Tom Barbereau, Reilly Smethurst, Orestis Papageorgiou, Alexander Rieger · 5 authors
Bitcoin and Ethereum are frequently promoted as decentralized, but developers and academics question their actual decentralization. This motivates further experiments with public permissionless blockchains to achieve decentralization along technical, economic, and political lines. The distribution of tokenized voting rights aims for political decentralization. Tokenized voting rights achieved notoriety within the nascent field of decentralized finance (DeFi) in 2020. As an alternative to centralized crypto-asset exchanges and lending platforms (owned by companies like Coinbase and Celsius), DeFi developers typically create non-custodial projects that are not majority-owned or managed by legal entities. Holders of tokenized voting rights can instead govern DeFi projects. To scrutinize DeFi’s distributed governance strategies, we conducted a multiple-case study of non-custodial, Ethereum-based DeFi projects: Uniswap, Maker, SushiSwap, Yearn Finance, and UMA. Our findings are novel and surprising: quantitative evaluations of DeFi’s distributed governance strategies reveal a failure to achieve political decentralization.
Increased administrative discretion for human resource and financial management is commonly seen as a key component of efficient service delivery. However, the directive attitude of some central government officials in Tanzania undermines the administrative discretion of local councils to implement approved local plans and budgets. Using a case study of two local councils in Tanzania, this study investigated the influence of decentralization on administrative discretion and decision space. The findings show that local councils have little administrative discretion and decision space over human resources, financial management, and service delivery. The study calls for a comprehensive review of decentralization policies and local government legislation to address the allocation of powers and decision space of the institutional capacity of local councils to provide local services. Their roles and responsibilities should also be specified in the national constitution to safeguard them from the encroaching “directive culture” of central government officials.
The article considers the relationship between modern processes of budget decentralization and macro-financial policy of Ukraine. The focus on deepening decentralization processes in Ukraine remains unchanged. This emphasizes the use of the State Strategy for Regional Development for 2021-2027. The theoretical foundations of budget decentralization were introduced in the works of C. Tibet, W. Oates, E. Bracco, W. Tanzi, A. Aristovnik and other Western researchers. C. Oates defined the decentralization of fiscal powers as a benefit that could lead to a reduction in the size of the central government. This means reducing the tax burden by increasing competition from tax jurisdictions. For quantification at the level of an individual economy, it is possible to use the index of fiscal decentralization. This index consists of two sub-indices: the self-sufficiency index and the index of importance of subnational budgets. The OECD Fiscal Decentralization Database can be used as a source of information on fiscal decentralization. A retrospective analysis of economists has shown an increase in the index of fiscal decentralization and an improvement in the state of subnational entities in a favorable macroeconomic situation. On the contrary, the crisis worsens the conditions of subnational entities and is accompanied by a decrease in this index. With the beginning of the pandemic, there was a crisis situation regarding the macroeconomic support of further decentralization processes. Long-term social problems are deepening: demographic negatives, increasing external outflow of labor resources, shrinking the country's economy, progressive deindustrialization, high resource intensity of production, in particular, low energy efficiency, growing debt burden. The most destabilizing role is played by military events in the east of the country. High regional disproportion logically leads to a violation of the single economic space of Ukraine. The size of the budget deficit and public debt is increasing. The crisis has a significant impact on all macroeconomic processes, in particular, on the macro-financial stimulation of budget decentralization processes. The urgent task is to establish effective coordination of fiscal and monetary policy, as well as increase the capacity to attract loan financing. Extreme conditions force us to temporarily give up strategic intentions as such, which are not urgent. Public-private partnership can get another chance to become an effective mechanism of social interaction. Increasing competition between budgetary institutions and private institutions in these areas has the potential to increase the quantity and quality of public services.
From a public finance point of view, achieving sustainable development hinges on two critical factors: the subnational implementation of public policies and the efficient allocation of resources across regions through vertical intergovernmental transfers. We introduce a framework that links these two mechanisms for analyzing the impact of reallocating federal transfers in the presence of regional heterogeneity from development indicators, budget sizes, expenditure returns, and long-term structural factors. Our study focuses on the case of Mexico and its 32 states. Using an agent-based computational model, we estimate the development gaps that will remain by the year 2030, and characterize their sensitivity to changes in the states’ budget sizes. Then, we estimate the optimal distribution of federal transfers to minimize these gaps. Crucially, these distributions depend on the specific development objectives set by the national government, and by various interdependencies between the heterogeneous qualities of the states. This work sheds new light on the complex problem of budgeting for the Sustainable Development Goals at the subnational level, and it is especially relevant for the study of fiscal decentralization from the expenditure point of view.
During the 1990s Morocco implemented a series of major institutional and economic reforms that made the country politically stable and helped it to withstand the destabilizing effects of the Arab Spring. Political reforms resulted in the adoption of a new constitution in 2011, was followed by initiatives to improve justice, public administration, the fight against corruption, and to strengthen governance, transparency, and ethics in public life. The country also embarked on a regionalization of public policies and decentralization of administration to ensure an integrated and durable regional development. This reform momentum was further emphasized by the King of Morocco when in his 2019 throne speech he stressed that “… the stake is thus to rebuild a strong and competitive economy, by encouraging the private initiative, while launching new productive investment plans and by creating new job opportunities…” During two last decades Morocco recorded relatively solid economic and social results due to significant public investments and structural reforms aiming to: (i) stabilize the macroeconomic framework by reducing domestic and external vulnerabilities, in particular through the gradual suppression of subsidies for energy products and some foodstuffs; (ii) improve the framework of management of public finance through the adoption of a new Organic Law of Finance in 2015; and (iii) support the diversification and the competitiveness of the national economy. Morocco also reinforced its sectorial policies through plans for sector development aiming at enhancing the economic growth potential and the creation of jobs, including in the manufacturing sectors with significant added value in sectors such as the automotive, aeronautics and pharmaceutical products. The Moroccan economy has demonstrated an appreciable resilience in the face of an international context characterized by a succession of crises. The rate of growth of real GDP improved on average annually from 3.1% during the 1990s to nearly 4.2% on average annually between 2007 and 2018, sustained by the tertiary sector’s dynamism which posted an increase in its value added of 4.2%, contributing of 2.1 points in the GDP (Figure 1). The secondary sector also showed a similar tendency with a 3.3% increase in added value, carrying with it 0.9 percentage points contribution in economic growth, while the primary sector added value grew by 4.4% for a contribution to the growth of the GDP of 0.6 point (DEPF, 2019).
We build an endogenous growth model with consumer-generated data as a new key factor for knowledge accumulation. Consumers balance between providing data for profit and potential privacy infringement. Intermediate good producers use data to innovate and contribute to the final good production, which fuels economic growth. Data are dynamically nonrival with flexible ownership while their production is endogenous and policy-dependent. Although a decentralized economy can grow at the same rate (but are at different levels) as the social optimum on the Balanced Growth Path, the R&D sector underemploys labor and overuses data—an inefficiency mitigated by subsidizing innovators instead of direct data regulation. As a data economy emerges and matures, consumers’ data provision endogenously declines after a transitional acceleration, allaying long-run privacy concerns but portending initial growth traps that call for interventions. This paper was accepted by Kay Giesecke, finance.
The fundamental problem confronting most local authorities, especially those managing cities in developing countries, is the widening gap between the availability of financial resources and municipal spending needs. One of the main reasons for this increasing fiscal gap is the rapid growth of urban populations, which creates an ever-increasing demand for public services, new public infrastructure, and its maintenance. Most cities in developing countries depend mostly on central government transfers, with lesser revenues derived from property taxation and service charges. The main aim of this study is to review the scholarly published documents regarding the responsible governing system of the local government in the developing economy and to observe the challenges to them to manage fiscal imbalances. Looking at the practice of fiscal federalism and economic decentralization, there is no uniformity in the global experience. Developed countries are at the forefront of this agenda while developing countries have different experiences. It is important to find the right path with the appropriate solution to the problem seen from the international experiment and move forward accordingly. It is important not only to make laws but also to achieve prosperous prosperity through their proper use and for that it is important to understand that the implementation of the law should be done in the right spirit.
The subject of the study is the processes of budget decentralization in the management of public finances, as well as mathematical methods and models for implementing the concept of hard budget restrictions in order to create conditions for the self-development of administrative-territorial units. The aim of the study is to develop adaptive economic and mathematical models for implementing the strategy of hard budget constraints implemented in the process of inter-budget regulation. The relevance of the study is due to the fact that currently the subject of acute discussion in the scientific community is the self-development of administrative-territorial entities and increasing their financial independence. In this regard, the focus of economic research is focused on the problems of budgetary decentralization as an engine of economic development, as well as the related topics of the use of mathematical tools for modeling decision support in this area. The created models are subject to the requirements of learnability, adaptability to changing conditions of environmental influences, and the ability to operate not only with quantitative, but also with qualitatively defined characteristics. The problem of mathematical modeling is solved by applying an interdisciplinary synthesis of the theories of stochastic automata operating in random environments and fuzzy logic. The proposed synthesis of theoretical and methodological devices is the novelty of the research. As a result , an economic and mathematical model of a fuzzy automaton is constructed for determining and quantifying the values of the norms for the distribution of tax revenues between budgets of different levels of the budget system. A fuzzy automaton interacts with a simulation model that reproduces budget flows and quantifies the decisions made by the automaton model. The practical significance of the research results lies in the program implementation of the developed models and their inclusion in the public finance management circuit. In the future , it is planned to create a mathematical model of the collective behavior of fuzzy automata models, the interaction of which solves the problem of coordinating the interests of budgets of different levels of the hierarchy in the distribution of tax revenues.
Ensuring the social welfare of societies is closely related to the type and manner in which governments use fiscal policies. In this regard, the main purpose of this study is to investigate the effects of fiscaldecentralization (income and expenditure) on social welfare. For this purpose, based on 30 provinces of Iran data’s during the 2005-2017 period, first the variables affecting welfare have been identified and the social welfare index for the provinces has been calculated, then the effects of decentralization have been investigated using the generalized method of movements for Income and expenses on the welfare index. The results of the model estimations, indicate a direct relationship between income and expenditure decentralization with social welfare, but with further increase in decentralization, this relationship has become negative and this indicates the instability of the fiscal situation in improving social welfare and has led to further increase in decentralization, this relationship becomes negative. Therefore, increasing decentralization and delegating more development projects to the provinces does not increase welfare, but also, first the necessary infrastructure for delegating affairs to the provinces, the power of self-government of the provinces should be evaluated, then with independence in Finance, we should expect the realization and improvement of social welfare in the provinces.
Abstract Local governance in developing countries demonstrates many problems related to financial sources and good governance of their finances. Local Self-Government (LSG) units in the Republic of North Macedonia are very small which results in a lack of capabilities to raise enough funds to offer delegated services. The local government in the Republic of North Macedonia centralizes almost all public finance. Local budgets depend heavily on state transfers and donations from the central budget. The lack of funds remained a crucial problem even though there were some attempts for the decentralization process. Practically, governments in many of the local governments in North Macedonia could not secure their resources. In this way, they could come with specific charges, but all taxes are decided by the central government. The practice showed that local governments before borrowing needs to be approved by the Ministry of Finance. The Republic of North Macedonia as a potential candidate to join the European Union should make several changes regarding the legislation during the process of accession to benefit from being a small candidate country. The main aim of this paper is to investigate alternative financial sources such are Municipal Bonds, Partnership Sukuk securities, and PPP. Unfortunately, many financial alternatives have not been able to be implemented due to failures in reforms and good financial governance. But they remain an open opportunity for developing a local government in the future.
During each election cycle, the city of Seattle distributes four $25 vouchers to every registered voter, which may be donated to and redeemed by campaigns for city office. Through a difference-in-differences research design, we study the causal effect of Seattle's program on various outcomes in city council elections in the first two cycles after implementation, with comparison cities drawn from large cities in Washington and California. We find a 53% increase in total contributions and a 350% increase in number of unique donors; these effects are largely explained by large increases in small donations, defined as contributions less than $200. We find statistically insignificant evidence of decreases in private donations, although our point estimates suggest moderate-to-substantial crowd-out ratios. We further estimate a highly significant 86% increase in number of candidates coupled with substantial decreases in incumbent electoral success. These results provide some of the first causal evidence of the effect of decentralized public campaign finance schemes, while speaking to the impacts of campaign regulation more generally on donation activity, candidate entry, and incumbency advantage.
A game between a representative household and a government was analyzed. The household chose which fractions of two currencies to hold, e.g., a national currency such as a Central Bank Digital Currency (CBDC) and a global currency such as Bitcoin or Facebook’s Diem, and chose the tax evasion probability for each currency. The government chose, for each currency, the probability of detecting and prosecuting tax evasion, the tax rate, and the penalty factor imposed on the household when tax evasion was successfully detected and prosecuted. The household′s fraction of the national currency, the government’s monitoring probability of the national currency, and the penalty factor imposed on the global currency, increased in the household′s Cobb Douglas output elasticity for the national currency. The household′s probabilities of tax evasion on both currencies increased in the government’s Cobb Douglas output elasticity for the national currency. The government’s taxation on both currencies decreased in the output elasticity for the national currency. High output elasticity for the national currency eventually induced the government to tax that currency more than the global currency. The household′s probability of tax evasion on the global currency increased in the government’s output elasticity for that currency. The household was less (more) likely to tax evade on the national (global) currency if the government valued taxation and penalty on the national (global) currency. The results are illustrated numerically where each of the eight parameter values was varied relative to a benchmark.
This study theoretically and empirically analyzes the relationship between decentralization and welfare. The model identifies conditions in which a decentralized government is utility-maximizing compared to a centralized one. The empirical analysis utilized data from Philippine provinces to study the relationship between several decentralization indicators and welfare, as measured by per capita income, human development index, and poverty. Results suggest that fiscal independence, or the ability of local governments to generate their own revenues to finance their own expenditures rather than relying on central government transfers, is positively associated with per capita income and HDI. Moreover, this relationship is stronger when governance is better and weaker among lower-income provinces. In contrast, a higher number of local government units per population is linked to adverse development outcomes, and this association is stronger among lower-income provinces and weaker among those with good governance.
The main focus of this paper is to analyze the effect of local public finance on spatial land use through economic models and empirical evidence from Israel. The theoretic models extends the Alonso-Mill-Muth model by incorporating local public finance. The first finding is that steady population growth provides a channel for land capitalization through the mechanism of long term land property right. This implies a possible conflict of interest if ownership of land leasing revenue and the ad valorem property tax are not consistent. The empirical section examines one of the implications derived from the models highlighting a possible inconsistency between central and local governments due to land ownership centralization. This causes local tax revenue inequality among Israeli municipalities. Statistical evidence shows that cities with a larger share business land use can generate more tax without assistance from the central government, and are therefore more fiscal independent. Fiscal status has a significant effect on the planning time of residential construction. Municipalities with higher local tax revenues have shorter planning time(higher probability of acceptance) conditional on the plan’s size and other features.
This paper theoretically underpins the idea of greater involvement of local governments in the overall development of India explained through the theory of Fiscal Federalism. The theory outlines the dynamics of decentralization of power and functions through a multi-layered governance system leading to a new structure and added functions, finance, and accountability to local government. The paper also provides an overview of the increasing role of urban local governments in India and investigates whether the Urban Local Bodies (ULBs) of Gujarat – a state in India, are efficient to perform the functions and responsibilities assigned to them by the 74th Constitutional Amendment Act (CAA). It scrutinizes the financial health of local governments in the urban regions of India. The results based on the application of MANOVA indicate that the 74th CAA empowered ULBs with a strong economic base that these ULBs are capable of mobilizing their own resources. This means that smaller municipalities must develop and convergence must be supported by a proportionate level of grants. This will ensure that with the development of social infrastructure, economic activities will increase, and, as a result, the conversion will occur.
Julio López Laborda, Fernando Rodrigo, Eduardo Sanz Arcega
A necessary condition for the efficiency gains that the theory of fiscal federalism attributes to decentralization to be effective is that citizens rightly assign the governmental responsibility for public action. However, surveys show that most Spaniards are unable to correctly identify the taxes received by the various levels of government. Exploiting the 2015 wave of the Spanish Institute for Fiscal Studies’ Fiscal Barometer, this paper empirically determines the profile of citizens who are best able to identify the allocation of taxes among levels of government in Spain. The estimates suggest that these citizens are those who are able to identify the government that provides the services financed by those taxes, who correctly identify other taxes received by the same government, who reside in a chartered (“foral”) region, and who enjoy a high level of education.