This study focuses on the subnational governments’ revenues, their productivity and contribution to the total budget of the region. In Ethiopia, the regions get significant amount of revenue from the central government’s block grant and their revenue sources generate very small amount of revenues and their tax bases are also very narrow. The study describes the revenue contribution of tax and non-tax bases separately and their trends throughout the periods. Moreover, it distinguishes specific revenue sources and their productivity, consistency of revenues from specific sources to finance local needs, and challenges in administration of their own revenue sources. Key w ords : Fiscal federalism, block grant, tax revenues, non-tax revenues, government budget.
The implications of delegating fiscal decision making power to sub-national governments has become an area of significant interest over the past two decades, in the expectation that these reforms will lead to better and more efficient provision of public goods and services. The move towards decentralization has, however, not been homogeneously implemented on the revenue and expenditure side: decentralization has materialized more substantially on the latter than on the former, creating vertical fiscal imbalances. These imbalances measure the extent to which sub-national governments' expenditures are financed through their own revenues. This mismatch between own revenues and expenditures may have negative consequences for public finances performance, for example by softening the budget constraint of sub-national governments. Using a large sample of countries covering a long time period from the IMF's Government Finance Statistics Yearbook, this paper is the first to examine the effects of vertical fiscal imbalances on fiscal performance through the accumulation of government debt. Our findings suggest that vertical fiscal imbalances are indeed relevant in explaining government debt accumulation, and call for a degree of caution when promoting fiscal decentralization.
Dubravka Jurlina Alibegović, Sunčana Slijepčević, Željka Kordej-De Villa
Decentralization can be generally described as a process in which selected functions are assigned to sub-national units. The literature identifies number of positive consequences of decentralization which all lead to better satisfaction of citizens? needs for public services. Although decentralization process in Croatia started more than 10 years ago, it still has not been finished. It led to new division of authorities and responsibilities to the local government units, but the level of fiscal decentralization remained lower than in the EU countries. The efficient decentralization should incorporate delegation of authorities, responsibilities and resources to local government units based on the clear criteria, but also should ensure better coordination and cooperation of all entities in providing public functions. In the paper we analyze fiscal capacity of local government units to provide an insight into the main problems of decentralization in Croatia. We show that the most of local government units have very low fiscal capacity and cannot finance basic public functions from their own resources. The paper also presents result of the performed survey about decentralization process among local councilors at the regional level in Croatia. We explore how local councilors at regional level in Croatia evaluate different goals of decentralization. Having in mind the lack of fiscal capacity, we identify two possible solutions for an optimal provision of public functions. The first one is level of political will for the joint provision of public functions between different local units, and the second one is change in territorial division of the country. We measure the difference in the attitudes toward these questions across counties.
This paper critically accounts for why fiscal decentralization does not necessarily enhance revenue autonomy in the experience of Taiwan, as local governments do not pursue it. This experience is especially relevant to unitary countries that are undergoing both democratization and fiscal decentralization. This paper shows that, with inter‐jurisdictional competition, democratically elected local governments are inclined to pursue tax harmonization and have little incentive to maximize taxing powers even though doing so increases own‐source revenues. The local governments in Taiwan take a ‘mini‐max’ fiscal strategy, which involves minimizing changes to own‐source revenues while maximizing local expenditures. To finance increasing expenditures as a response to the demands of constituencies, local governments tend to press the central government to increase local government's tax bases, and to try to gain a greater share of intergovernmental transfers by having their administrative status upgraded. In summary, revenue autonomy is not being pursued by local governments because of political considerations. In a decentralized fiscal system, local governments can be fiscally accountable, but still irresponsible .
The present work aims to study the public finances and the economic behavior of Municipalities alagoanos between the years 1999/2010, using the fiscal and economic indicators commonly used. Therefore, it is considered the theoretical training of Public Finance, the influence of government in the economy to theoretical assumptions about the process of decentralization / centralization in Brazil. The Constitution of 1988 is a milestone in the pursuit of decentralized fiscal federalism, since from that moment, the municipalities now receive the status of a federated entity and had the largest increase in revenues and collection mechanisms itself. Thus, subnational, closer to the wishes of the population could more effectively meet the state's role in the production of public goods and the solution of the demands of the population. However, in the years after the Constitution of 1988, the political changes in the country, especially with Brazil's adherence to the neoliberal project, the advent of the plan and the actual enactment of the Fiscal Responsibility Law, led to a new process of fiscal centralization in Brazil, with consequences for the 5565 Brazilian municipalities. In this context, it is statistically analyzed the finances and economy of the municipalities in Alagoas. The GDP of them indicate the growth of the service sector and centralization of wealth in a small number of cities, as well as the lack of dynamics in small towns, which the government has the primary component in your product. The analysis of municipal finances, with the support of development indicators and the index itself FIRJAN fiscal management, confirm the initial assumptions of the work: the low collection itself, high dependence on federal transfers, effort and compliance with the limits established by LRF for personnel expenses and low levels of investment. Thus, the main findings indicate that the decentralization process of the 1988 Constitution was undermined by the next decade, penalizing the poorest municipalities in case of most in Alagoas.
Alina Florentina Cucos, Кукош, А., Trif, N., Триф, Н. · 5 authors
Water supply and sewerage services represent utilities that must be provided to all users, both the urban and the rural. The responsibility to ensure these services in terms of non-discrimination and affordability belongs to the local authorities, which in the spirit of decentralization have exclusive jurisdiction on their establishment, organization and operation. Regardless of the chosen management, the funding of water supply and sewerage services, is accomplished by means of the prices and tariffs paid by the users. Their quantum, specific to some social services, covers the costs without allowing the accumulation of consistent profit margins, which would ensure the development of the specific infrastructure from the operators' own funds. It is therefore necessary that funding for the creation and rehabilitation of water supply and sewerage systems to be provided from other sources than the budgets of operators, such as: budgetary allocations of local public authorities, government or European funding programs. This paper is of interest because it captures just how the prices and tariffs for these services are composed, and the entire procedure for foundation, adjustment and modification that follows different rules from those of pricing in the market economy, and it provides a review of the types of programs through which the development of the specific technical-urban infrastructure and the significant increase in the number of users in the past 25 years.
The decentralization process was continuous in Romania starting with 1990, generating the implication of local authorities in local public finance, as a result of exclusives, shared and delegate competences and, so, the necessity of ensuring a good management of resources and expenditures. Therefore, the decentralization of competences / responsibilities from State to local governments was a major Romanian political theme and a first rank component of management of local public finance, as main driving instrument for local development. Specific legal framework of local responsibilities is established both to European and national level. Researchers based on regulation and practice have tried to quantify the responsibilities developing different models to measure local revenue and expenditures autonomy. The paper aims is to identify some models for measuring local expenditure autonomy and to apply for Romania. The study is oriented to measure local expenditure autonomy in Romania using Bell, Ebel, Kaiser and Rojchaichainthorn's model.
This article reflects some results of the work undertaken by the expert working group on optimization of public expenditures in the area of governance which contributed to the overall efforts on evaluating efficiency of the federal budget expenditures and forming recommendations on the optimization of such expenditures in 2013. This evaluation was conducted jointly by the Russian Academy for National Economy and Public Administration (RANEPA) and National Research University – Higher School of Economics (NRU-HSE) in cooperation with the Ministry of Finance, Ministry of Economic Development, and other federal authorities. The article is focused on the influence of decentralization policies on the efficiency and effectiveness of public spending both in a broad context and in one, based on the practice of delegating some federal powers to the constituent entities (regions) of the Russian Federation. Analysis of the federal budget execution data as well as some public sectors’ statistics demonstrates that the practice of delegation of the Russian Federation’s powers to the sub-national level which was accompanied by relevant budgetary transfers (subventions) has led to an excessive growth of the federal budget expenditure on the relevant areas (as compared to the GDP growth for the same period and the growth of the federal budget expenditures on the public administration as a whole). At the same time –at least in the selected cases –the efficiency and effectiveness of public spending, including performance outputs have decreased aft er the delegation of powers took place. Decentralization based on the delegation of powers has also resulted in new functions aimed at controlling the effectiveness of the delegated authorities’ performance. As a result, total administrative costs have increased. Given these conclusions it is recommended to switch from the practice of delegating authority to the practice of reallocating certain powers among the levels of government with a parallel reallocation of the budget revenue sources. Such a reallocation should be based on a detailed profound review of the efficiency and effectiveness of decentralization in each particularsector, with both the options of further devolution and recentralization being considered.
Cette thèse cherche à savoir si la méthode décentralisée, officiellement mise en avant dans la gestion des crises de la dette souveraine depuis leur origine, est non seulement réalisable, mais également efficace en termes de répartition équitable du fardeau de la dette. Nous définissons en effet un processus de restructuration efficace comme une procédure de courte durée (inférieure à un an) et qui respecte les besoins des deux parties prenantes au contrat. Si du côté des créanciers, la décote ne doit pas être abusive, du côté du débiteur, la dette doit redevenir soutenable, au sens à la fois économique et social du terme. Le terrain d'analyse des processus de renégociation de la dette se concentre exclusivement sur les économies d'Amérique Latine, dans la mesure où elles représentent les débiteurs ayant enregistré le plus grand nombre de défauts au cours de l'histoire. À travers une méthode pluridisciplinaire, nous défendons finalement la thèse selon laquelle l'échec des différents processus de restructuration est directement subordonné à l'iniquité du partage du fardeau de la dette, laquelle fait suite à un déséquilibre des pouvoirs de négociation inhérente au cadre de gestion décentralisée. Notre posture macroéconomique et notre démarche inductive induisent un cadre d'analyse socio-économique, lequel fait appel à un approfondissement historique, en termes d'économie politique, mais également à une étude basée sur la psychologie sociale. La thèse est structurée autour de deux parties, elles-mêmes subdivisées en deux chapitres. La première partie s'attache à comprendre les origines et les modalités de prévention et de gestion des crises, ainsi que leurs échecs. Elle conjugue de fait l'observation empirique et les soubassements théoriques de la décentralisation. De fait, le premier chapitre fait état, au vu de la double responsabilité à l'œuvre dans le déclenchement et l'enlisement dans la crise, de l'échec de la méthode décentralisée sur le long terme. En effet, non seulement la décentralisation apparaît inapplicable, puisqu'une tierce partie est systématiquement contrainte d'intervenir, mais elle ne permet pas non de plus de répartir équitablement les coûts de la crise. Le second chapitre cherche consécutivement à comprendre pourquoi ce processus de restructuration est néanmoins maintenu. L'économie politique de la décentralisation montre alors que le choix entre la régulation et le « laissez-faire » ne tient pas tant à des critères d'efficacité économique qu'à des considérations idéologiques et politiques. La deuxième partie de cette thèse propose symétriquement des pistes de réflexion afin de pallier les principaux écueils relevés lors des différents épisodes de défaut et de restructuration. Ainsi, si le troisième chapitre répond au second, le quatrième fait écho au premier. En effet, le troisième chapitre montre que la décentralisation ne peut aboutir en raison non seulement de ses écueils techniques, mais surtout de la nature des deux parties au contrat. L'immunité souveraine ayant été relativisée dans les deux premiers chapitres, il s'agit ici d'analyser le fonctionnement des marchés selon une méthode alternative au concept d'efficience. C'est la raison pour laquelle nous faisons appel aux préceptes de Keynes (1936) et de son analyse en termes psychosociaux, que nous approfondissons au travers du courant de la finance comportementale. Une telle étude révèle ainsi l'incapacité des créanciers à s'organiser de bonne foi, laquelle représente pourtant la condition sine qua non de la réalisation et de l'efficacité de la méthode décentralisée. Par conséquent, le dernier chapitre de ce travail conclue sur la nécessité d'un revirement en faveur d'une approche plus centralisée, laquelle inclut une tierce partie neutre, compétente et institutionnalisée.
Fiscal decentralization is an important influence factor on the autonomy of local government. To the extent in which a local government benefits from amounts and transfers from the central government, it depends on it and has a reduced capacity to make decisions about the services they provide to citizens, local autonomy being limited. Even if the legal framework for decentralization was created in Romania, we still can not talk about a high degree of financial autonomy of local governments. Further, significant amounts from the state budget are transferred to local budgets to cover local expenses. Moreover, despite consistent efforts to implement the decentralization process, there is a series of imbalances, especially in smaller territorial administrative units that are clearly disadvantaged both in terms of financial capacity to finance themselves through local taxes and duties, and especially in terms of the low absorption capacity of European funds. In general, in Romania, the degree of financial autonomy differs nationally from the city level and from the village level.
Fan and Lv (2012) have convincingly argued that China's public debt, including borrowings by local governments, is relatively small and manageable. They have also correctly pointed out that over the last 10 years, while debt owed by local governments has surged, the government's contingent liabilities, which take into account the need to use public funds to bail out state-owned banks with large nonperforming loans, have declined sharply. I have little disagreement with Fan and Lv's conclusions, and my comments, which cover four major issues, are meant to clarify some details. My first comment relates to centralization versus decentralization. Fan and Lv argue that China has a centralized fiscal system (de jure) based on the facts that top local officials are appointed by the central authority, tax revenues largely accrue to the central government, and the central government monopolizes the right to issue debt to the public. However, some economists have argued that China has a decentralized system (de facto) based on the facts that local government expenditures are very large relative to the central government expenditure, formula-based equalization transfers are relatively small, revenues from land sales make up a large share of total local government revenues, and borrowing by local government “financing platforms” helps to fund infrastructure projects. Even if we accept that China has a centralized fiscal system, based on the case of Japan, which has a centralized fiscal system but is running one of the largest budget deficits in the world, I still have some doubts about whether centralization necessarily means fiscal prudence (small budget deficits and public debt) as argued by Fan and Lv. There is also a debate over whether decentralization favors economic growth. On the pro side, fiscal decentralization promotes competition among local governments, and it acts as a major force of economic development in China. On the con side, fiscal decentralization fragments the national market, encourages local protectionism, induces duplicated investment, and, hence, negatively affects economic growth. Second, I would put more emphasis on land prices and pension liabilities as major determinants of fiscal balances and, thus, the size of the public debt. A fall in land prices affects the fiscal position of local governments in the following two ways. On the one hand, it leads to a decline in their revenue, since proceeds from land sales are a major source of revenue for local governments. On the other hand, some local government financing platforms involved in property development (if not speculation) using funds borrowed from banks may have difficulty servicing those loans. Pension liabilities relating to urban workers under the previous pension regime, the so-called legacy costs, are estimated to range from 82% to 130% of 2008 gross domestic product (GDP), depending on assumptions made (World Bank and Development Research Center of the State Council of the People's Republic of China, 2012). Ultimately, this obligation will have to be paid down through fiscal resources and should be counted as part of the government's contingent liabilities. Third, I think more attention should be paid to the future trends of revenues and expenditures when discussing fiscal sustainability. On the revenue side, growth in fiscal revenues is expected to slow down as the pace of China's economic growth declines due to demographic changes and to the diminishing advantage of backwardness as China approaches the stage of an advanced economy. On the expenditure side, there is a pressing need to further increase spending on education, health, social protection, and environmental protection. Part of these incremental expenditures could be met through a reallocation of spending away from infrastructure investment. Finally, I agree with the view expressed by the World Bank and Development Research Center of the State Council of the People's Republic of China (2012) that enhancing fiscal sustainability in China calls for raising revenues by further reforms in the following six directions: (i) higher taxes or prices on energy, water, natural resources, and pollution; (ii) raising state-owned enterprise dividend payments to the general budget; (iii) further mobilizing personal income taxes, which make up only 1% of China's GDP compared with an average of about 6% in high-income countries; (iv) enhancing the taxation of motor vehicles and pricing of parking and congestion; (v) enhancing property taxes; and (vi) auctioning public resources such as bandwidth user rights, franchises for public utilities, and exploitation rights for natural resources. These measures should improve not only fiscal sustainability but also improve equity and efficiency for the Chinese economy as a whole.
Abstract Making use of the data envelopment analysis (DEA) technique and taking undesirable fiscal phenomena into account, this paper comprehensively quantifies the public finance performance of local governments in China during the course of fiscal decentralization reform. The introduction of undesirable fiscal outcomes into this assessment makes it possible to identify meaningful and informative characteristics of local public finance performance in China. When reforms are first implemented, local public financial performance improves because undesirable fiscal phenomena have not yet become too serious. The tax sharing system reform did not work well in its early stages, and negatively impacted public expenditure efficiency. The reform started to play a substantial role between 2001 and 2005, when local governments experienced better public finance performance. Corresponding to the deterioration of the financial sector in recent years, local public financial performance worsened after 2007. Further reform of the current fiscal and taxation system is necessary in China, to ensure a brighter future for the nation.
This article discusses how the 7th National Finance Commission award and the 18th Amendment to the Constitution have strengthened the autonomy of the federating units in Pakistan. The former has empowered the provinces by increasing their access to financial resources, but there is the danger that it may increase the consolidated fiscal deficit unless both the federal and provincial governments increase their fiscal efforts and rationalize their expenditures. The 18th Amendment has the potential to change the structure of governance, but has been implemented in such a way that effective decentralization has been at least partially rolled back. For devolution to work in Pakistan, financing and the delivery of devolved services will have to be more effectively organized and managed.
Open access
Politics and Conflicts in Afghanistan, Pakistan, and Middle East
Андреас Каппелер, Albert Solé‐Ollé, Andreas Stephan, Timo Välilä
Spending on productive infrastructure is seen as an important contributor to long term economic growth. Several authors have documented a downward trend in public investment during the last three decades and warned about its possible detrimental effects on the economy. A not well-realized fact is that productive infrastructure investment is mostly provided by sub-national governments. The aim of this paper is to analyze the effect of revenue decentralization on the provision of infrastructure at the sub-national level. We estimate the effects of revenue decentralization and earmarked grant financing on the level of sub-national infrastructure investment in 20 European countries over the period 1990-2009. The findings are compared to those obtained when using sub-national investment in redistribution, for which the theory predictions are different. To account for the high auto-correlation in the dependent variable, we apply a dynamic panel data approach. In particular, we use a Corrected Least Squares Dummy Variable (LSDVC) estimator with the lagged dependent variable included to account for the dynamic character of the dependent variable. The empirical analysis shows that decentralisation in terms of tax shares increases public investment in infrastructure; public investment in redistribution is not significantly affected by decentralisation. The positive link between total regional investment and decentralisation suggests that decentralisation on regional infrastructure investment is additional and does not go hand in hand with a considerable reduction in other types of regional investment, such as health, education or safety. As to investment grants, they have a positive impact on both types of regional investment. The negative interaction between investment grants and decentralisation for regional infrastructure investment suggest that the impact of tax decentralisation on regional infrastructure investment declines with increasing receipts of investment grants by regional governments. This result is intuitive. As the significance of the tax-decentralisation parameter suggests, higher regional decision autonomy leads to more investment in infrastructure. Attempts to undermine the power of regions through the backdoor - e.g. by introducing conditional transfers - will at least partly offset the positive effect of decentralisation.
Núria Vergés Bosch, Mateu Espasa, Albert Solé Ollé
Contents: Preface 1. Inter-regional Fiscal Flows: Introduction to the Issues, Nuria Bosch, Marta Espasa Queralt and Albert Sole Olle PART I: COUNTING MONIES: MEASUREMENT AND PRACTICE OF INTER-REGIONAL FISCAL FLOWS 2. Regional Fiscal Flows: Measurement Tools, Giuseppe C. Ruggeri 3. Regional Fiscal Flows: Determinants, Measurements and Meanings, Francois Vaillancourt Comment by Nuria Bosch and Antoni Zabalza 4. Constitutional Reforms, Fiscal Decentralization and Regional Fiscal Flows in Italy, Maria Flavia Ambrosanio, Massimo Bordignon and Floriana Cerniglia 5. Measurement and Practice of Fiscal Flows: The Case of Belgium, Paul Von Rompuy 6. Balance Sheet Federalism: Canada, Giuseppe C. Ruggeri Comment by Francois Vaillancourt 7. Balance Sheet Federalism: Methodologies, Results and their Determinant Factors for Spain, Marta Espasa Queralt and Nuria Bosch Comment by Guillem Lopez Casasnovas and Ramon Barberan PART II: BEYOND THE DATA: WHY SOME REGIONS GET MORE MONEY? 8. Federalism and Inter-regional Redistribution, Jonathan Rodden Comment by Carles Boix 9. Decentralization by Politicians: Creation of Grants-financed Local Jurisdictions, Stuti Kehmani 10. The Political Rationale of Regional Financing in Spain, Sandra Leon Comment by Santiago Lago 11. The Determinants of Regional Transport Investment Across Europe, Achim Kemmerling and Andreas Stephan 12. The Determinants of the Regional Allocation of Infrastructure Investment in Spain, Albert Sole-Olle Comment by Germa Bel PART III: IN OR OUT? REGIONAL REDISTRIBUTION AND THE STABILITY OF FEDERATIONS 13. Federalism, Regional Redistribution and Country Stability, Enrico Spolaore Comment by Massimo Bordignon 14. The Costs and Benefits of Constitutional Options for Quebec and Canada, Francois Vaillancourt 15. Staying Together? Scotland and the Rest of the United Kingdom, David Bell 16. The Costs and Benefits of Staying Together: The Catalan Case in Spain, Elisenda Paluzie Index
Financing of local authorities is currently at the Centre of the political discourse is a daily concern. Romania faces, usually with an attempt to offset the need for control and reduction of public spending with greater financial autonomy of local authorities. At the time, it was searched and searches for a path, a means to achieve a fair distribution of financial resources between the various levels of administration, budget reductions to all of them. If strengthening democracy means to strengthen local autonomy, then it means you have created a system for financing local authorities to be efficient, fair and pointing towards the economic needs of States. In other words, decentralization and local financing and the principle of subsidiarity are mutually dependent. Rightly, the decentralisation of financial management is considered to be the "backbone" of the administrative system of decentralisation, the financial resources being those which are operational link between the needs of local communities and the rules necessary to satisfy them. Thus, the lack of financial resources of the local self-government can result in failure to meet the needs of its members, which at the same time failure of administrative decentralization. The decentralisation of financial management can also be seen as the Government of some specific functions on the line of management authority and the tax revenue to the local public authorities.
Pablo Simón, Santiago Lago Peñas, Alberto Vaquero García
This paper studies the effect of political variables on the gains obtained by Spanish regions in periodical bargaining of the intergovernmental financing agreements and on the regional distribution of discretional earmarked grants over the period 1987-2008. First, we find that the relationship between gains in transferred revenues and on regional public debt stocks depends on the period and the specific issues discussed in the corresponding negotiation, aside from political affinity. Second, we show that the most discretional program of earmarked grants is strongly driven by electoral strategy. National incumbents tend to allocate intergovernmental transfers where there are competitive regional elections. Moreover, we show that earmarked grants are allocated in those regions where the incumbent performs better in national elections and, especially, in those where there are more seats to be won. Hence we prove that both strategies are complementary rather than exclusive.