Blockchain Papers

Isabel Correia, Juan Pablo Nicolini, Pedro Teles

No abstract is available for this record.

Lars–Erik Borge, Jørn Rattsø

Vertical fiscal imbalance, decentralized responsibility of spending with centralized financing, creates a common pool problem with spending pressure towards central funds. A model of decentralized government spending under vertical fiscal imbalance is developed, and the importance of national political characteristics for internalization of costs and spending level is investigated in an econometric analysis of Norway during 1880–1990. We argue that in a parliamentary democracy, the internalization of costs is influenced by the party fragmentation of parliament. This is confirmed by the econometric analysis using a Herfindahl index as a measure of fragmentation and political strength.

Jonathan Rodden, Erik Wibbels

Recent research on federalism is extremely divided. While some tout the benefits of “market-preserving” federalism, others point to the fragmentation and incoherence of policy in federal states. This research bridges the divide by analyzing the political andfiscalstructures that are likely to account for the highly divergent economic experiences of federal systems around die world. To test these propositions, the authors use an original data set to conduct analyses of budget balance and inflation infifteenfederationsaround the world from 1978 through 1996. The empirical research suggests that the level of fiscal decentralization, the nature of intergovernmental finance, and vertical partisan relations all influence macroeconomic outcomes. The find- ings have broad implications for the widespread move toward greater decentralization and for the theoretical literatures on federalism and macroeconomics.

Motohiro Sato

We provide a model incorporating features of local public finance in Japan, including close fiscal ties between different levels of government as well as bureaucratic determinations of intergovernmental transfers. The discretionary nature of transfers softens local budgets ex post, which exerts perverse incentive effects on local governments ex ante. Fiscal decentralization that assigns more revenue responsibility to the local level serves to counteract this moral hazard incentive. The emphasis is on the endogenous nature of regional fiscal capacities at the local level. Fiscal devolution motivates local jurisdictions to become fiscally independent wherever possible.

Gabriella Legrenzi, Costas Milas

The Italian general government expenditure is empirically modeled by considering demand-side, supply-side, and institutional factors. The authors estimate a long-run relationship with government expenditure driven by the demand-side and supply-side effects of domestic income and bureaucratic power, respectively, as well as by an institutional factor, namely, the decentralization of public expenditure. The disequilibrium error positively affects income growth and local spending, implying that when government expenditure is above its equilibrium level, both economic growth and local governments benefit. However, tighter government spending within the European Monetary Union environment suggests that local governments will have to become more efficient to find additional resources for their financing.

Fernando Filgueira, Herman Kamil, Fernando Lorenzo, Juan Andrés Moraes · 5 authors

This paper analyzes the reasons behind Central Government (CG) bailouts of Subnational Governments (SNGs) in the case of Uruguay. We argued that Uruguay represents a good example of the risks of fiscal decentralization, in the context of adjustment policies, and when SNGs` responsibilities and resources have not been carefully defined. We show that, in unitary countries where SNGs lack the opportunities to misbehave that they have in federal countries (e. g. , public debt issuance, international borrowing), SNG officials find ways to finance deficits through non-compliance with politically contestable obligations. In particular, SNGs in Uruguay finance their deficits by accumulating debts with other government agencies and obtaining discretionary transfers from the CG. Through statistical analyses we show that debts and deficits are mainly related to vertical fiscal imbalances and economic conditions in the SN jurisdictions. Yet, the analysis of recent bailout episodes suggests that institutions and political factors play a role (i. e. , they are important ex-post factors). This implies that bailouts have been more than simple compensations for structural imbalances, thus creating opportunities for strategic behavior on the part of SNG authorities (partly confirmed by the disparate fiscal performance of Montevideo vis-à-vis the rest of the country).

International Monetary Fund

Based on cross-country data for up to 78 countries, this paper shows that fiscal decentralization-the assignment of expenditure and revenue mobilization functions to subnational levels of government-is associated with various indicators of governance, such as corruption, rule of law, and government effectiveness. Unlike previous studies in the decentralization/governance literature, which focus primarily on expenditure-based measures of decentralization, the results reported in this paper show that the relationship between decentralization and governance depends on how subnational expenditures are financed. The higher the share in total subnational revenues of nontax revenues and grants and transfers from higher levels of government, the stronger the association between decentralization and governance.

Евгений Федорович Сабуров, N. Tipenko, A. Cherniavskii

Budget federalism in Russia began in 1992. Under the effects of strong centrifugal trends, the decentralization of the budget and tax system took place in the form of "waves" of agreements regarding the share distribution of tax receipts, the entry into which entailed the delegation of ever greater powers to finance spending, especially social spending, to the regions.

Ashok Kumar Lahiri

this paper was presented at the Institute for Social and Economic Change (ISEC)-World Bank Institute Conference on "Decentralization and the Making of Sub-national Policy" at Bangalore on May 25, 1999.

Dietmar Wellisch

Active tax competition, in short, tends to produce either a generally low level of state–local tax effort or a state–local tax structure with strong regressive features . George Break (1967) The mobility of individual economic units among different localities places fairly narrow limits on the capacity for local income redistribution . Wallace Oates (1977) Policies that promote residential mobility and increase the knowledge of the consumer–voter will improve the allocation of government expenditures in the same sense that mobility among jobs and knowledge relevant to the location of industry and labor improve the allocation of private resources . Charles Tiebout (1956) If jurisdictions compete with each other and taxpayers/consumers are able to vote with their feet, there may be fairly strong pressures for subnational governments to respond to the wishes of the electorate . Charles McLure, Jr. (1986) Assignment of Government Functions and Mobility Assignment of Government Functions Issues of public finance appear in a new light when an economy is divided into several regions. If a state consists of many jurisdictions, the question arises of how to assign the various government activities to different governmental levels. The general functions of the government – to support an efficient allocation of scarce resources (where the private sector fails to do so) and to guarantee a fair income distribution – must first be divided into several components. Once a fundamental line of government policy is chosen, these functions must be assigned to the jurisdictions.

Guillém López i Casasnovas, Esther Martínez Garcia

The authors analyse the magnitude and composition of the fiscal imbalance between Catalonia and the Spanish Central government for 1995-1998, and its evolution since 1986. A flow approach is adopted, whereas the usual incidence hypothesis is followed in alloating tax revenues. The results show a rather stable net contribution of Catalonia to the Spanish Central government in 1998 of 1.3 trillion pesetas (8.37% of Catalan GDP). Calalonia participated in 19.60 % of Central government revenues, but received only 15.03% of expenditures. Catalan population is 15.5% of the Spanish total. Overall, in 1994 constant terms, the evolution of the per capita imbalance rises from 117,133 PTAs. in 1986, to 192,294 PTAs. in 1998. The authors also introduce an explicit way to deal with the effects of Central government budget deficits on fiscal revenues, in computing the financial distortions of the political and economic central role of Madrid, different tax compliance among regions, the impact of inflation differentials, and the evaluation of the social security flows on regional imbalances. In general, the authors favour an estimation of the amount of revenues at the disposal of Catalonia in order to finance its own expenditure, without the mediation of the Central government, but maintaining a single Spanish fiscal system. This approach may force the contribution of Catalonia as any other region to finance the joint expenditures of the Central government, and/or to finance its owm public sector, but in a rather more dear way. As a result, with regard to the financial decentralization system, territorial solidarity and social cohesion is enhanced, at the same time that autonomy and self-governance, in a better way than it is today.

Massimo Bordignon

Problems of `soft budget` constraints in intergovernmental relationships are currently at the frontier of research in local public economics. This paper reviews the Italian experience in the field, starting from the mid-1970s up to the present period, compares it with that of other countries, and uses it to comment upon the state of the literature. The paper argues that the soft budget constraint problem has been a rampant one in Italian local public finance, generating efficiency losses, lack of political accountability and undermining the soundness of public finances. The paper inquires into the causes and possible solutions to the problem, and in particular describes and comments upon the decentralization process of the 1990s. Finally, the Italian debate on fiscal federalism of the 1990s is also reviewed, arguing that some of the suggestions of this debate may be of interest more generally.

Roy Bahl

Fiscal Decentralization is a popular economic development strategy among transition and developing countries. This article reviews the advantages of fiscal decentralization in a theoretical context, but critiques the relevance of the standard theory of federalism as it applies to emerging economies. It is argued that the macroeconomic benefits of fiscal centralization, the absence of good instruments of local government finance, and the centralist politics that characterize most low income countries have been strong enough to hold back increased emphasis on local government finance.

Lev Freinkman, Plamen Yossifov

To shed light on decentralization in Russia, the authors examine intergovernmental fiscal relations within regions. To analyze trends, they review channels of fiscal allocation within regions - tax sharing and local transfer schemes. To evaluate the potential impact of various fiscal decentralization patterns on regional economic performance (including growth and the budget deficit), the authors study data on the structure of 89 Russian consolidated regional budgets for 1992-96. They find that local governments'relative share of Russia's consolidated budget, although substantive (roughly a quarter of the total budget), did not expand after 1994. The federal government's relative role in financing public goods and services declined as the relative role of local governments increased substantially. Local governments collected more revenues in 1996 (6.4 percent of GDP) and spent more than regional governments. They also substantially increased social financing (including health, education, and social protection). Russia made no progress toward a more transparent system for tax assignments. The average level of expenditure decentralization is similar for ethnically Russian regions and national republics and"okrugs"but revenue arrangements differ greatly."True"decentralization has taken place in"oblasts"and"krais"where local authorities are provided with a bigger share of sub-national tax revenues. A redistribution model applies in republics and autonomous okrugs, where greater local outlays have been financed through larger transfers from regional governments. Regions near each other tend to have similar budget arrangements - the result of intensive interactions between neighbors and probably supported by the activities of regional associations. The size of a region's territory does not influence decentralization outcomes. Fiscal decentralization seems positively related to the share of education spending in regional budgets. And regions with more decentralized finances tend to experience less economic decline. But budget control is weaker in more decentralized regions. Instability and lack of transparency in intergovernmental fiscal relations provide sub-national governments little incentive for responsible fiscal policy. Further decentralization without greater transparency could bring greater debt and deficits.

Anand N. Asthana

No abstract is available for this record.

Junaid Aḥmad

The note highlights the importance of
\n sound intergovernmental fiscal relations, and proper
\n regulation for successful sub-national borrowing, and
\n illustrates the potential macroeconomic hazards of
\n decentralizing borrowing powers, arguing that the impact of
\n a possible moral hazard problem, namely, the access to
\n financial markets by sub-national governments, may generate
\n unplanned liabilities for central governments. Yet academia,
\n and country experiences do not suggest adverse links between
\n decentralized borrowing powers, and the central
\n government's ability to maintain fiscal discipline, and
\n macroeconomic stability. Rather the key seems to lie in the
\n design of fiscal decentralization, particularly the
\n regulatory framework under which borrowing powers are
\n decentralized. The note outlines the reasons why
\n sub-national governments require access to financial
\n markets: to finance capital spending, and foster political
\n accountability, which can be achieved through direct
\n borrowing by central government, through a public financial
\n intermediary, or, through direct borrowing. As per designing
\n the regulatory framework, the note suggests better
\n information systems, bankruptcy laws, and access to tax
\n bases, in addition to separate fiscal/financial systems, and
\n sound legislation to impose budget discipline, enabling
\n access to capital markets to complement fiscal powers
\n devolution to regional authorities.

Jorge Martínez-Vázquez, Robert McNab

The goal of this paper is to review the state of our knowledge in the economics literature on the causal relationship between fiscal decentralization and economic growth and democratic governance, whether these relationships are uni-directional or bi-directional, and to what extent there appear to exist synergies or pre-conditions between fiscal decentralization, on the one hand, and economic growth and democratic governance, on the other.Little systematic empirical research has been dedicated to testing the strength of the bi-directional links between fiscal decentralization and democratic governance. At the present time, we have little knowledge about whether fiscal decentralization is preceded by the emergence of democratic institutions, whether fiscal decentralization encourages the establishment of local democratic institutions, or whether fiscal decentralization and subnational democratic governance occur at the same time. What we know about these issues is based on case studies and conjectures and observations from particular country experiences. The information base on decentralization and governance has been limited because case studies of the fiscal decentralization systems in particular countries often pay little attention to governance issues.There are strong reasons a priori to argue that there should be a symbiotic relationship between fiscal decentralization and democratic governance. Explicitly, and more often implicitly, democratic governance is widely acknowledged in the economics literature as a necessary condition for effective fiscal decentralization. But clearly, there is wide consensus that the relationship also works the other way. Greater fiscal decentralization, especially the devolution or delegation of tax and financing and spending powers to subnational governments promotes democratic governance through representation and accountability.

M. Govinda Rao

Financing Decentralized Expenditures presents new original research papers on the structure of intergovernmental fiscal relations in virtually all types of countries and the design and implementation of transfer mechanisms between different levels of government.

Jorge Martínez-Vázquez, Sally Wallace

The governments of Eastern Europe and the former Soviet Union are at a crucial juncture in their movement from highly centralized command economies to more decentralized market economies. While there is a belief in these countries that decentralization brings greater economic efficiency, the reality is that such a transition is a difficult process. This paper examines what types of administrative reforms are needed for the decentralization process, how far along the countries are with respect to these reforms, and what reforms are missing. As we discuss, many of the necessary administration reforms are missing and we argue that more attention must be paid to these elements for successful decentralization of these governments. This paper examines the recent experience and reform needs of the key administrative aspects of the design of intergovernmental relations in countries in transition in Eastern Europe and in the former Soviet Union. There is a widespread realization in all of these countries that decentralizing government will help increase efficiency in the public sector just as privatization will improve efficiency in their economies. Decentralization of government operations is also attractive as a way to cement a democratic form of government. Despite the appearances of the existence of an already decentralized system, such as in the case of the Soviet Union, this experiment started in practically all cases with a lack of institutions and experience on how decentralized government operations should be organized. As different as these countries are, there are many similarities in the reform process they are following in order to decentralize government structure. While the basic components of a decentralized system of government are emerging in many of these countries the structure of government has not fully evolved in a manner that can support such a decentralized system. Often, governments remain structured along a vertical hierarchy: information, budgetary authority, and revenue pass from the central government down to subnational levels of government while little communication or interaction exists at a horizontal level. In general, the assignment of revenue and expenditure has not been clearly defined among the two or three levels of government, central government transfers continue to occur in a relatively ad hoc manner, and the entire budgeting system still rests in many cases on more or less formal system of negotiations and bargaining among the different levels of government. There has been some change in this structure in certain countries. Over the last three years, both Poland and Hungary have legally increased the automony of subnational governments. In 1994 in Russia a new and more transparent system of intergovernmental grants has been established between the federal government and the regions. In 1994 also, Latvia introduced a more transparent formula-driven, transfer formula for the regional and municipal governments. The focus of this paper is to develop a “blue print” for necessary changes in organization and administration of intergovernmental relations in countries in transition. While many experts have recently been discussing the public finance policy components of this new, evolving relationship among levels of government, less attention has been paid to the structural and administrative challenges and the information design issues that must be met in order to develop and support a system of intergovernmental relations. The paper is organized as follows: First we review the major responsibilities and their allocation among levels of government, the assignment of revenue sources, and the system of transfers. We then turn to a discussion of the current experience of Eastern European and NIS countries in the context of the structural components of an intergovernmental fiscal system. Next, we analyze the organizational reforms that are necessary for the efficient functioning of a decentralized system of government in the economies in transition. Finally we “rate” the transition economies in relation to their current design of the system of intergovernmental relations and support mechanisms.

Jorge Martínez-Vázquez

Estonian authorities have made remarkable progress in a relatively short period of time by putting into place the elements of a modern budget process and fiscal management system. This progress is especially notable given the difficult circumstances the country has gone through in the transition period of the last five years. The most significant changes in budgetary policy took place with the adoption of the Law on State Budget in June 1993. Several other pieces of legislation have come to complement the Budget Law including laws on local budgets, state external audit and the department of treasury. Other reforms have helped establish the basis of a modern fiscal management system. These include a monetary board assuring the independence of monetary policy from fiscal management and eliminating all possibilities of inflationary deficit financing, a well designed and impressively simple tax code, an overall well designed system of decentralized government, and the privatization of many state enterprises.However, there are still significant steps that need to be taken for making the government budget and the budget process itself effective instruments of fiscal management in Estonia. In some cases, the new budget institutions are at the early stages of development and appear fragile because of lack of resources or trained personnel and lack of tradition. In other cases, the proper institutions for fiscal management have not been developed or are lacking. Addressing these reform issues should significantly enhance the ability of the Government of Estonia to accomplish its objectives of macroeconomic stability, a more efficient allocation of public funds, and growth of the economy’s private sector.This report takes stock and evaluates the reforms in fiscal management already introduced, those scheduled for introduction, and those that the Government still should consider putting in place to accomplish an effective fiscal management system. Because they have been reviewed recently, this report does not discuss in depth existing budget institutions but instead puts emphasis on recent reform and highlights those problem areas where additional reforms will be necessary. The first section of the report provides a brief overview of the main accomplishments and failings of Estonia’s budget process and fiscal management system. The next three sections of the report review in more depth the three stages of the budget process: policy formulation, forecasting and budget preparation; budget execution and the ongoing effort to introduce a modern treasury function in the Ministry of Finance; and the institutions for budget compliance, namely internal and external ex-post audits and budget evaluation.

Tao Zhang, Heng‐Fu Zou

In this paper, we present an analytical model for examining the growth impact of intergovernmental and intersectoral allocation of public expenditure. The model helps us quantify the role of fiscal decentralization in regional economic growth and identify whether central and local allocation of public spending among various sectors are growth-enhancing. Applying our analytical framework to a panel data set of 16 major states in India, we have found that, in many cases of our regressions, fiscal decentralization is positively, and even statistically significantly, associated with state economic growth. The state allocation of public spending in various sectors is broadly consistent with "growth-maximizing", whereas increases in the central allocation of its budget among development projects, nondevelopment projects, and social and community services by cutting the center¡¯s spending on all other functions can promote regional growth. Furthermore, the distortionary effect of the state tax in India is dominated by the productive effect of tax-financed public spending, whereas the reverse holds for the central tax.

J Suárez-Pandiello

The aim of this paper is to contribute to the financial behavioural analysis of Spanish municipalities since the start of the ambitious process of political and economic decentralization linked to the restoration of democracy at the end of the 1970s. Specifically, the author presents financial figures, reviews the characteristics of the local finance system and the evolution of that system through what has been a series of unfinished reforms, and concludes by suggesting some possible corrections to the imperfections, or loose ends, detected.

Juliet Musso, John M. Quigley

No abstract is available for this record.

Nobuki Mochida

No abstract is available for this record.