Each chapter of this thesis investigates one aspect of China’s taxation system. Chapter 1 investigates the introduction of accelerated depreciation (AD) for fixed assets investment in China as a natural experiment. In contrast to the large positive impact of similar tax incentives in the U.S. and U.K. found in recent studies, we document that AD was ineffective in stimulating Chinese firms' investment and that firms fail to claim AD on over 80% of eligible investments. We investigate information frictions as the primary driver of both facts. Chapter 2 documents new facts about the structure and drivers of China’s SI contributory base, with an emphasis on non-compliance. First, 54% of firms do not pay into the employer-based SI system leaving 35% of employees outside of SI coverage. Among participating firms, an estimated 85% of firms are not fully compliant. Second, compliance increases sharply with firm size. Third, China is unique in that SI administration and insurance pooling are done at sub-provincial levels. We investigate how this decentralization contributes to firm non-compliance. Chapter 3 applies the lessons from Chapter 2 to analyze China's primary fiscal response to the Covid-19 crisis: an exemption for firms from making SI contributions, resulting in an average tax cut of 21 percentage points on employment. Labor informality substantially reduces the reach of this fiscal response and skews the tax savings towards large firms. Offsetting this negative targeting is the much higher labor intensity of the firms most vulnerable and exposed to the economic shock, which creates a larger benefit from payroll tax cuts for these firms. Chapter 4 studies the transition from a turnover tax (TT) to a value-added tax (VAT). This reform, the largest Chinese tax reform in a quarter-century, mostly eliminated the taxation of firm inputs. We assess the effects on production, investment, and outsourcing. We find minimal effects on firm output but large increases in fixed asset investment. The latter is driven by an effective 17 percentage point reduction in the tax rate on fixed asset purchases. We also find mixed evidence on whether outsourcing increased due to the reform.
The formation of the three tiers of government represents a novel experiment in Nepal’s federal journey since the adoption of the new constitution in 2015. State power in the former unitary system, both rights and responsibilities, has been divided across federal, provincial and local tiers of government, with a mix of exclusive and concurrent powers for each. In matters within their jurisdiction, subnational governments can formulate laws on financial rights, set their own budgets, make decisions, devise plans and policies, implement those plans, levy taxes, and collect revenues. In the roughly three years since devolution went into effect, a few problems and uncertainties have cropped up, particularly in the exercise of power. Subnational governments complain that the center has not been very cooperative when it comes to the formulation of laws, allocation of resources, transfer of the institutional set-up, etc. However, there have been some achievements in the implementation of federalism. Institutional structures have formed at the subnational government levels, they have begun staffing, and their fiscal situations are gradually strengthening. Improvements have been made in almost all areas, including social, human development, economic, infrastructure and administrative sectors. A sense of positive competition has been created between different local and provincial governments. However, a continuing point of tension in Nepal’s federal devolution is shape of the fiscal architecture supporting the new rights and responsibilities of subnational governments. The constitution provides many functional responsibilities to provinces but only limited revenue rights. This structure conflicts with the “finance follows function” principle of effective decentralization, suggesting that initiatives are needed to review the fiscal space of the provincial level. The purpose of this paper is to analyze existing institutional structures and details of subnational government finance (“fiscal architecture”) in Nepal, primarily at the provincial level, and identify recommendations for improvement.
Theresa Grafeneder-Weissteiner, Ingrid Kubin, Klaus Prettner, Alexia Prskawetz · 5 authors
This article introduces a social planner version of a model central to the New Economic Geography for explicitly answering whether the symmetric equilibrium outcome of the decentralized market economy is socially desirable. We find that savings incentives are too weak, resulting in an inefficiently low capital stock and therefore an inadequate number of product varieties. The optimal subsidy and taxation scheme to remedy these distortions resulting from the monopolistic competition structure is shown to be a sales subsidy financed by a lump-sum tax that results in marginal cost pricing. Interestingly, implementing this optimal policy might actually destroy the stability of the symmetric equilibrium and result in unintended agglomeration processes.
In the age of economic globalization, the need for independence in important economic decisions individually and collectively is evident. Decentralization and fiscal decentralization are trends for political and economic reform in recent decades around the world. Albania began the process of transition from a centralized economy to a free economy in the early 1990s. Numerous reforms followed this process in almost all sectors. This process is accompanied by transforming existing economic mechanisms and infrastructure to better function the free-markets model, but above all, with the need to develop and create new legal, institutional, economic, and social instruments and spaces to increase the allocation and efficiency of public and private resources. The latest reform in terms of decentralization is the Territorial Administrative reform of 2014. We try to answer the research question through this study: What has been the impact of decentralization reforms on the local government's public services' performance? The research methodology used is a descriptive analysis of data obtained from the Ministry of Finance and Economic and local municipalities on the reforms' impact. Data analysis shows that some improvements and progress has been made in advancing decentralization reform, but there are still many challenges ahead, such as the lack of a clear legal and regulatory framework. Adding to that concern is local governments' financial autonomy, which remains a challenge for the future.
Abstract Setting limits on government action is critical to economic development. Some forms of government organization, such as market‐preserving federalism, seem effective to protect property rights in the long term with good results for economic efficiency. Spain endowed its regions with “Statutes of Autonomy” in the 1980s thus moving from a centralized to a decentralized form of government. It renewed and expanded some of the statutes in the 2000s. This article investigates whether these two waves of regionalization, which had their own characteristics in each region, had led to positive effects on economic performance. Using a novel autonomous region/country‐matched balanced sample for the period 1950–2016, we apply the synthetic control method and compare the economic growth trajectories of Spanish regions with their synthetic control groups not affected by the regionalization process. We show that the first wave of “Statutes of Autonomy” had a positive but temporary economic growth impact. By contrast, the second wave of regionalization of the 2000s is associated with a negative growth impact.
The suspension of economic relations as a result of the global pandemic has severely affected the country’s peripheries. Unequal development of territorial units and overcoming socio-economic problems is the biggest challenge of any country. To address these challenges, the country needs to mobilize large amounts of finance and make optimal allocations. Intergovernmental relations play an important role in the effective implementation of the transformation of the country’s economic and political system. The aim of the paper is to study the characteristics of revenue mobilization and distribution between the levels of the fiscal system. There are developed some recommendations for improving inter-budgetary relations based on the experience of different countries. The recommendations proposed as a result of the research analysis can be used for both theoretical (for lecture) and practical (for legislative) purposes.
Kimberly Michelle Sandoval-Guzmán, Mardo Iván López-Ortega, Pedro Ernesto Domínguez-Rivera, Nelson Ernesto Rivera-Díaz
El presente artículo tiene como objetivo analizar la factibilidad de la implementación de criptomonedas como un medio para el financiamiento de la deuda pública externa de El Salvador. La estrategia utilizada corresponde a un modelo econométrico de medias móviles que utilizan las cotizaciones del Bitcoin y Ethereum. Paralelamente, se complementa con un análisis de escenarios propuestos.
The germ of the fund that structurally changed the financing of education
Primary was born from an idea by Luiz Villela. In the early 1990s,
The Ary Oswaldo Commission studied the tax reform using different approaches.
Together we formulate a proposal, called salary-education,
to redesign the state and municipal quotas of the social contribution, which
it was collected from the payroll and distributed among governments according to the origin of the collection
Highly skilled human capital is usually also highly mobile. Concerns regarding interregional migration revolve around suboptimal public financing of higher education rooted in free-riding behaviour if budget responsibilities are decentralized. This investigation sets out to answer whether cross-state mobility of students in general and individual taste variation in the preference for ‘home’ and ‘university’ states in particular justify concerns about the free-riding behaviour of state governments. We analyse graduates’ location choices when leaving university using a mixed logit model and subsequently relate the revealed taste variation to individual characteristics. The results suggest some attachment to ‘home’ states that justify concerns about potential free-riding. However, substantial taste variation exists and is partly associated with the quality of human capital. State governments free-riding on the investment of others therefore may face a quality trade-off.
Introduction. In the context of reforming the system of local self-government and territorial organization of power, the use of world best practices in the context of decentralization and implementation of best foreign practices in shaping the finances of territorial communities and their associations is of paramount importance. Accordingly, a number of important theoretical postulates of domestic financial science need to be reconsidered through the prism of improving existing and developing the latest conceptual approaches to the functioning of the finances of united territorial communities (OTG) using international advances in this area. local development.Purpose. Given the limited theoretical and practical work of domestic scholars on the finances of the united territorial communities, the purpose of the article is to use the best world practices to improve the efficiency of OTG finances.Methods. The methodological basis of the study are general scientific and economic- statistical methods: analysis, synthesis, statistical method - to study the international experience of OTG finance reform; inductions, deductions - to determine the directions of development of OTG finances in Ukraine; abstract-logical, economic-mathematical - for estimating revenues and expenditures of local budgets of OECD countries. Results. The world experience of reforming the finances of territorial communities is considered. In the context of application of the best international practices the directions of development of finance of OTG in Ukraine under modern conditions of carrying out financial decentralization are offered. Estimates of revenues and expenditures of local budgets of OECD countries were assessed, which allowed to determine priorities in revenue generation, expenditure optimization, distribution of powers and functions, as well as the use of new sources to increase the revenue base of local communities and their associations in Ukraine. Discussion. The prospects for further research is to develop a model for optimizing the financing of OTG development in order to ensure the implementation of its own powers and functions.
Today, the problem of cities local finances and their governance, is at the heart of major national debates and reforms, as well as major concerns in all countries where decentralization continues and aims to strengthen the autonomy and competences of local administrations. The mobilization of local fiscal potential is a fundamental condition for promoting sustainable urban development. Despite the efforts made, local Moroccan finance, like most developing countries, does not escape an absolute reality: The scarcity of the resource. The weakness of local resources in Morocco is more related to the real low level of local tax deduction than to the economic poverty of local authorities. Many sectors of the economy have very little or no tax, while property taxes does not contribute enough to local economic activity. This article uses the case of Morocco to analyze the challenges and failures of local finances in general, and of local taxation in particular. We also discuss the tools to promote the financing of cities to promote sustainable urban development in Morocco.
In this note I show that quadratic funding achieves decentralized social efficiency in the extent there are enough (donor) matching funds to cover the quadratic funding objective. If individual backers internalize that matching funds will not be sufficient to reach the quadratic level, allocation will be biased towards the capitalist allocation, the more so, the less matching funds are available. This result emerges even when individual contributors are not required to finance the deficit (i.e., the difference between total contributions and available matching funds). I also show properties of the level of required matching fund, in order to better understand under which conditions social efficiency will most likely be compromised.
This article discusses the features of implementing tax federalism in a unitary state. The article analyzes the implementation of the fourth level of the budget in the Republic of Kazakhstan, as well as the experience of tax independence of municipalities in the European Union. The article analyzes the weaknesses of the current model of financing local self-government in the Republic of Kazakhstan and the state of self-government in General. It is assumed that the system used for financing the local community does not fully use the economic and investment potential of the territories. It is proposed to introduce elements of an independent fiscal policy at the local government level in the Republic of Kazakhstan to increase the investment attractiveness and self-sufficiency of the fourth-level budgets.
Nuwun Priyono, Siti Arifah, Eva Wulandari, Panji Kusuma Prasetyanto
The purpose of this study is to prove to what extent the influence that fiscal decentralization, local financial performance, local government expenditure, Locally Generated Recurring Revenues or Pendapatan Asli Daerah (PAD), Profit-Sharing Fund or Dana Bagi Hasil (DBH), General Allocation Fund or Dana Alokasi Umum (DAU), and Special Allocation Fund or Dana Alokasi Khusus (DAK) have on the level of society welfare. The objects of this research are Regencies and Municipalities in Java Island. The data used in this study are the secondary. The data on balance sheet and realization report of the regional revenues and expenditure budget (APBD) are from the Ministry of Finance of the Republic of Indonesia. The data on the level of society welfare that is proxyed by the value of HDI is obtained from Bappenas and BPS of Central Java. This research uses time series data from 2012- 2014 periods. The research method used is the research of causality with linear regression model. The result of the significance test shows that only one DAK variable can partially affect the HDI variable. Meanwhile those variables other than DAK partially or individually do not influence the HDI variable. The result of regression analysis shows that simultaneously such variables as Fiscal Decentralization, Regional Finance Performance, Local Government Expenditure, PAD, DAU, DAK and DBH have an influence on HDI in Regencies / Municipalities in Java Island.
Qurat ul Ain, Tahir Yousaf, Yan Jie, Yasmeen Akhtar
This paper provides empirical evidence on the association between post-2001 devolution reform policy, government size, and specifc components of government expenditures based on a sample of panel data of provincial units in Pakistan from 1990 to 2015. The results demonstrate that devolution is associated with a larger government size, which provides empirical support for the common-pool hypothesis, implying that the decentralization that matters for the size of the general government depends on how sub-national governments finance their expenditures. Moreover, the fndings suggest a signifcant increase in the magnitude of Health and education facilities at the local level following the devolution reforms.
Purpose Over the past 20 years, China's infrastructure has developed at an extraordinary speed. The current literature mainly focuses on the effects of political incentives on the infrastructure. However, this paper indicates that the structural change of China's land regime is an important clue and that the supernormal development of China's infrastructure is an explicable result for that. Design/methodology/approach This paper theoretically proves that in a politically centralized and economically decentralized economic entity with a public land-ownership regime, the self-financing mechanism formed by local officials through regulation of the land-grant price is the primary factor that influences the optimal supply volume of infrastructure in a region, in addition to political and economic incentives, and whether the self-financing mechanism can be formed or not depends on the structure of a country's land regime, which can help to explain the difference between the development of infrastructure in China and that in other developing countries from a theoretical angle. Findings The paper suggests that the mode is facing an important transformation toward land reform and new-type urbanization construction, and the replication and promotion of China's experience in infrastructure construction are of further significance under the Belt and Road Initiative as it provides a method for helping developing countries to eliminate infrastructure bottlenecks. Originality/value Through the test of multinational panel data, the paper indicates that the structural change of China's land regime around 1990 had an overall effect on the supernormal development of infrastructure in China. The paper indicates that the “land-based development mode” of China's infrastructure indeed contributed to the supernormal development of infrastructure in China, but there are still some shortcomings in this mode.
This Special Issue publishes high quality papers on contemporary issues in business and economics in Vietnam and other Asian emerging markets. These papers were accepted and presented at the 2019 Vietnam’s Business and Economics Research Conference (VBER2019) organized by Ho Chi Minh City Open University, Vietnam in July 2019. Emerging issues in business and economics from Vietnam and other emerging markets in the Asian region have been addressed from various angles, from economics, finance, and statistics to management science. Five out of the 14 studies in this book were conducted to investigate various issues in relation to the Asian region such as the exchange rate regime in Asia, financial inclusion, and financial development and income inequality in Asian emerging markets. Seven studies were conducted in response to emerging business and economic issues in Vietnam such as fiscal decentralization, urbanization, foreign direct investment, and corporate financial distress. Other papers even considered various relevant aspects from the United States and Europe to the Asian region including double taxation treaties and agricultural shocks to the oil price. The findings from these papers are useful for practitioners, policymakers, and academics.
In the past two decades, land finance, a phenomenon of the financing arrangement based on land development, has gradually become a fiscal model that profoundly affects China's economic development. Based on the theory of fiscal decentralization and environmental federalism, this study employs a specially designed two-stage regression method to capture both direct and indirect (through economic development and industrial structure) influences of land finance on carbon emissions. Using the provincial panel data for the period of 1998–2016, the empirical results indicate that the direct influences are dominant, and the total impact of land finance on carbon emissions is non-linear and is dependent on the level of Gross Domestic Product (GDP) per capita. After 2003, the total effect is that carbon emissions increase continuously along with the economic development. To balance economic development and environmental protection and to enhance sustainable development, the traditional style of land finance should be changed as soon as possible.
In this thesis, we examine the political economy of public finance. I provide a general introduction to the thesis in Chapter 1. In Chapter 2, I examine the determinants and interrelationship of different types of government expenditure using data on 73 countries for the period 1990-2016. The results show foreign aid receipts and urbanization have raised total expenditure, but external debt stocks have reduced total expenditure. Also, there is a substituting relationship between expenditures on social protection and pure public goods, and education and defence, but complementary relationship between all other categories of government expenditure. \nIn Chapter 3, we provide an up-to-date empirical assessment of the relationship between economic globalisation and government spending for the ‘hyper-globalisation’ period of the 1990s and 2000s. The results suggest that hyper-globalisation has had divergent and conflicting effects on consumption spending: while the globalisation of trade has tended to raise spending, the globalisation of finance and foreign investment has tended to reduce it. However, the size of the effects is quite small, and there is no evidence that spending has risen by more in countries which are particularly prone to terms of trade shocks. \nIn Chapter 4, I examine the mediating effect of democracy in explaining the relationship between decentralization and government size for the period 1970-2013. I proxy decentralization by fiscal decentralization, use total spending as our primary measure of government size, and adopt the V-Dem high-level democracy indices as measures of democracy. I use the fixed effects estimator with Driscoll-Kraay standard errors and the instrumental variable estimation technique. Our main finding is that fiscal decentralization and democracy in themselves are effective tools to ‘starve the beast’ as they lead to reduced government size, with the former suggesting support for the Leviathan hypothesis. I find evidence of the mediating effect of democracy in the relationship between decentralization and government size; a positive and statistically significant effect of the interaction term with the effect size largest for participatory democracy. We do not find a non-linear relationship between decentralization and government size. \nIn Chapter 5, we examine how local governments’ political alignment with the central government affects subnational fiscal outcomes. We analyze data from Ghana, which has a decentralized political structure with substantial political and fiscal powers delegated to the district level, and high dependency on intergovernmental transfers. Using a regression discontinuity design for a new dataset for 1994-2014, we find that districts with an aligned Member of Parliament and District Chief Executive (DCE) receive more transfers and have higher expenditures. In a second step, we instrument transfers and estimate a flypaper effect for Ghanaian districts.
In the given paper, the features of the influence of institutional incentives and power tools on the efficiency of decentralization in ensuring prosperity and in the context of economic growth are explored. The purpose of the given paper is to determine the instruments of government and to characterize the methods of using them to promote decentralization, as well as the mechanisms for financing local governments, the decentralization of information and to define their role in the application of market incentives for decentralization. To study the peculiarities of power tools and institutional incentives for decentralization, to determine the conditions for effective work of local government financing mechanisms, the benefits of information decentralization and types of market incentives, a methodology of desk research was used with analysis of the results of theoretical and applied research published in foreign literature. Secondary information has been gathered in the context of the experience of implementing reforms on decentralization of state power, the peculiarities of the institutional environment and the establishment of stimulating factors for increasing the efficiency of state power. Institutional incentives to increase the effectiveness of decentralization have a complex hierarchical structure, and their impact depends on many factors of local culture and management traditions. Decentralization of information and different market incentives may also have different effectiveness in their application. In any case, many changes are needed in the political system. In future studies, it is planned to focus on the peculiarities of decentralization in certain regions of Ukraine and to assess the state of implementation of the proposed mechanisms for funding local governments in specific circumstances.
The research on the influencing phenomena at the budgetary process of Local Government Union Councils in Bangladesh is based on a combination of political psychology, applied economics and public management issues (i.e. decentralization, local government finance, and local governance, as well as the budgeting theory and local government budgetary process). The purpose of the research is to explore the critical influencing phenomena and their relative influences on Union Councils’ budgeting decisions. The study reveals that the influence of concerned phenomena or issues does not always collide with the budgetary autonomy of Union Councils, but the effects of the influencing issues on their budgeting decisions are evident with varying degrees and dimensions. The study has employed qualitative method with six case studies on criteria based purposively selected Union Councils at Sunamganj District in Bangladesh.
The author considers fiscal incentives of regional authorities in the system of federal intergovernmental relations. The aim of the study is to determine how the debt burden of Russian regions affects regional fiscal policy in the context of federal co-financing of expenditure obligations. The work employed the methods of grouping, one-dimensional cluster analysis, correlation analysis, and regression by generalized method of moments (system-GMM). The study found that the increase in the regional debt burden relates to a decrease in the level of local fiscal decentralization. Intensive debt financing of regional expenditures in 2013–2015 also reduces the willingness to regionally co-finance federal priorities. The author concludes that high debt burden reduces the fiscal incentives of regional authorities to co-finance federal initiatives and creates the risk of underfunding of national projects.
Decentralization in the public sector, in general, has been discussed in the perspective of revenue sharing between spheres of government in the federation and the distribution of decision-making autonomy in the application of public resources and government management processes. This research is part of this context, and it investigates the decentralization of the expenditure execution process, a practice carried out within governments, and its impact on municipal spending. The analysis was carried out from the perspective of the Theory of Public Choice, which presupposes the self-interested behavior of managers when they participate in government decision-making processes and, therefore, the autonomy granted to them to decide on expenditure is important. To operationalize the research, five areas of government activity were selected – education, health, social assistance, sports and leisure, and urbanism – to represent different expenditure characteristics and sources of financing to explain the behavior of managers in different expenditure realities. The data were collected through an electronic questionnaire, whose respondents were managers of city halls, complemented by data from public sources of information. The econometric analysis was done through the estimation of the model by quantile regression for each of the areas analyzed, with data from 290 municipal governments in the period between 2013 and 2018. The results show that the decentralization of the process of spending execution (i) for area with insufficient resources decreased the expenditure; (ii) for areas with insufficient resources and characteristics that make it possible for managers to bargain budgets, the expenditure has increased; and (iii) for areas with insufficient resources, but without characteristics that allow bargaining by budget, decentralization was ineffective. It is concluded, therefore, that the decentralization of spending execution affects municipal expenditure and these effects are different depending on the characteristics of the area in which decentralization occurs, since the behavior of managers is affected by these characteristics. This research points out theoretical implications when it highlights the behavior of managers and the expenditure characteristics of the areas as relevant factors to be considered in the analysis of the relationship between decentralization of spending execution and expenditure. Governments can use the results of this research to assess the desirability of decentralization, as well as consider the need to implement controls on expenditure in decentralized environments.