Compared with most countries the Norwegian system of financing local governments is highly centralized. Grants make up a substantial part of revenues and local taxes are highly regulated by the center. The development of the system was motivated by a desire to equalize service provision throughout the country. The purpose of this paper is to analyze possible consequences of more decentralized financing with local tax discretion. Contrary to the conventional wisdom the analysis indicates that decentralized financing is likely to give more equal provision of local public services. In addition, substantial efficiency gains can be obtained.
Two candidates compete for elective office. Each candidate has information she would like to reveal to the voters, but this requires costly advertising. The candidates can solicit contributions from interest groups to finance such advertising. These contributions are secured by promises to perform favors for the contributors, should the candidate win the election. Voters understand this and elect the candidate they like best, taking into account their expectations about promises to special interests. There is an incumbency advantage in fundraising, which is sometimes so great that the incumbent faces no serious opposition at all. Introducing partial public financing through matching funds improves voter welfare in districts that have advertising under the decentralized system, while it can reduce welfare in other districts. The optimal policy must strike a balance between these two effects.
In this essay, we survey the literature on local public finance. The first part deals with the normative theory of local public finance, starting from the question when it is beneficial to decentralize public services. We then analyze the functioning of a system of competitive jurisdictions in the spirit of Tiebout. The final part of the essay deals with constitutional design. In particular, we ask when and how local governments have to be regulated in order to prevent destructive competition or contain monopoly power, and we describe which institutions might perform these tasks.
To build a sound fiscal relation among the governments is the goal of the reform of the tax decentralization system. The reform was carried out in 1994, yet a lot of problems have not been solved. In a market-oriented economy, it is a shortcut to construct a sound fiscal relationship among governments by reinspecting the fiscal administrative system of China from the angles of affairs right, property right and transfer payment, and learning the experience from foreign countries.
This chapter deals with the evolution of tax administration in Spain from the initial stages of the democratic process, way back in the second half of the seventies, up to the present time. Given the relevance of the classical interrelation between the tax reform processes and tax administration reforms, we review the main events and milestones in the last three decades. We analyze the influence that institutional, economic, and political factors have had on both the architecture of the tax administration and its organizational behavior. Nevertheless, based on what we have just said, the performance of the Spanish tax administration cannot be satisfactorily assessed without explicit reference to the deep decentralization experienced by the Spanish tax system from the early eighties, and especially since 1994. That is why a considerable part of the chapter is devoted to analyze the role played by the successive reforms of the Autonomous Communities' financing system, and the decisions of the regional governments themselves, in shaping Spain 's tax administration.
We show that federalism will lead to higher economic growth. We present a model of endogenous growth where government services, funded by income and capital taxes, are a component of production. In this model a decentralized government will choose tax policy to maximize economic growth, while a centralized government will not do so. Furthermore, these conclusions hold regardless of whether the government is beholden to a median voter or is a rent-maximizing Leviathan. However, a decentralized government will under- provide a consumptive public good. Finally, we show our results are robust to imperfect capital mobility between districts and in such a model that districts with a lower total factor productivity will choose a more growth-enhancing tax policy.
Summarizing twenty five years of Spanish local public finance is not an easy task. In 1978, the new democratic Constitution completely changed the face of public administration in Spain . Until then, and apart from some minor, unsuccessful attempts at decentralization during the Second Republic in the early thirties of the last century, the model of governance was based on a pure version of Napoleonic centralism. Nevertheless, the decentralization process initiated by the Constitution gave the regional governments (that is, created ex novo) a leading role. The aim of this process was to provide the regions with growing competences and responsibilities in relation to expenditure assignments, and to a lesser extent, in revenue assignments. This new tier of government received major political and administrative support while local jurisdictions remained in the background from which they are, however, presently showing signs of emerging.
There is increasing interest in fiscal decentralization in Peru as a mechanism to generate more involved decision-making at the subnational level. This is tempered with a continuing emphasis on overall fiscal stability. However, considerable work needs to be undertaken to define more clearly expenditure responsibilities and financing mechanisms that increase local accountability. In addition, a more transparent fiscal transfer system is needed, together with clarity in expenditure management at all levels of government. The paper suggests that a substantial work agenda is needed to extend the decentralization process with greater transparency.
The widespread adoption of fiscal decentralization laws during the past 25 years can be mostly tracked to economic efficiency gains and nationâbuilding objectives. Subnational governments (SNGs) in industrialized countries account for about twice the share of total government expenditures as in developing countries. Transition countries also assign more expenditure responsibilities to SNGs than do the developing countries. There has been little growth in the SNG expenditure or tax shares over the past three decades. We confirm the basic hypotheses that the SNG expenditure share is significantly higher in countries with higher incomes, larger populations, and a lower degree of corruption.
This paper discusses the current situation of the local government bond in Japan, and consideration and behavior of regional banks as lenders to local governments through questionnaire surveys and interviews. We also discuss reform of the local government bond system and the decentralization of the local finance.
In the last 40 years, in public finance the examination of spatial aspects of federalism and intergovernmental fiscal relations was dominated by allocative and distributional issues. Modern growth theory and complementary approaches lead to a shift in the research perspective. Against this background the paper discusses how the findings of modern growth theory can affect the design of intergovernmental fiscal relations. The results of this analysis can be summarized as follows: (1) the existence of a geographically different growth dynamic provides an additional justification for a decentralization of political competences. (2) To cover more exactly the regional economic backward and forward linkages, especially local government authorities should intensify their cooperative behavior. (3) From the perspective of economic growth, the equalizing effect of horizontal transfers between decentralized jurisdictions should be limited.
This paper estimates the contributions of the strength of fiscal decentralization and the local preferential policies to the difference performances of private enterprises with the data from Zhejiang and Shanxi provinces.Our main discoveries are: the local governments which are differentiated by fiscal decentralization have contributions to the performance of the local private enterprises,but not so remarkable as expected.In the transition of local government's policies,tax and financing policies are more important.This conclusion indicates that an efficient executive system which can guarantee the contracts between government and enterprises is more practical than the preferential policy itself.
This paper is devoted to discuss some European evidence of decentralized public finance, as they may prove useful to give some suggestions for implementing the Italian current proposals of more fiscal decentralization. Except than in Nordic countries, new settlements of fiscal decentralization are planned or underway almost everywhere in main European countries, and not just in Italy. A common trend may be envisaged toward an increase of sub-national functions, while the way to more fiscal autonomy seems more uncertain. A prevailing mixed model (decentralization with scattered elements of political federalism) seems to emerge. However expenditure overlaps are so widespread to cancel out the popular idea that functions (exclusive or concurrent) may be allocated among government layers in a clear-cut way. In the average of EU15 countries, the financing of sub-national governments comes still largely from national block transfers highly perequating. A trade-off seems to exist, not easy to be removed, between the degree of decentralization and the room of manoeuvre of decentralized taxes. Following the European experiences, more autonomous financing might be obtained mainly by enlarging sub-national governmentsâ rate-freedom with respect to increased amount of national taxes (personal income tax and VAT) to be shared. Perequating systems widely differ among countries. Some recent reforms may however give some useful guidelines for a dualistic country as Italy. Transfers should be of vertical type, linked also to the regional needs and at least for a part targeted to specific aims. Fiscal decentralization may induce a decrease in overall budget responsibility. To control for this, international experience suggests that fiscal rules might be usefully integrated by formal cooperation between central and sub-national governments. Codici Jel H70, H72, H74, H77 Parole chiave:Federalismo fiscale; Italia; Europa Indirizzi E-mail : eunice@unipv.it, gandull@csb-scpo.unige.it
As authority over public expenditures has shifted from central to provincial and local governments in countries around the world over the last two decades, prevailing approaches to the study of decentralization in welfare economics and public choice from the 1970s and 1980s have given way to new political economy approaches. The first generation of theories envisioned central and lower-level governments as distinct sovereigns within their own spheres of activity. Recognizing a more complex reality, the political economy literature is rethinking the notion of sovereignty in multi-tiered systems. Motivated by recent difficulties with fiscal decentralization and fiscal discipline, this essay rethinks the notion of fiscal sovereignty, viewing it as an evolving set of beliefs in the context of a dynamic game of incomplete information played between central and subnational governments. Provincial or local governments, along with their creditors and voters, attempt to assess the credibility of the central government's commitment to abide by pre-specified intergovernmental fiscal arrangements. When higher-level governments dominate the field of taxation and take on heavy co-financing obligationsâas central governments do in virtually all newly decentralizing countriesâthe central government's commitment not to bail out subnational governments in the event of debt-servicing crises is not credible. In other words, subnational governments without significant tax autonomy will not be viewed as sovereign borrowers, and this has important implications for their fiscal behavior.
This paper concerns redistribution and public good provision in an economic federation with two levels of government: a local government in each locality and a (first mover) central government. Each locality is characterized by two ability-types, and the ability-distribution differs across localities. The central government redistributes via a nonlinear income tax and a lump-sum transfer to each local government, while the local governments use proportional income taxes and provide local public goods. We show how the redistributive role of taxation is combined with a corrective role, and how the central government can implement the second best resource allocation. Copyright 2008 Blackwell Publishing, Inc..
Decentralized countries around the world use different institutional set-ups to assure that the system of local government finances achieves the objectives sought by the public sector through the decentralized delivery of public services. In many centralized countries, the Ministry of Local Government is tasked with the exclusive responsibility to monitor and coordinate all aspects of intergovernmental relations, including local government finances. While the Ministry of Local Government generally also plays a role in more decentralized countries, it is not unusual for broad-based or inter-ministerial commissions to be tasked with tracking and considering local government finance issues in more decentralized countries. In contrast, other decentralized countries rely more heavily on local government associations or even the legislative branch to monitor and analyze the system of local government finances and to represent local government interests at the national level to assure a balanced system of intergovernmental relations. Finally, there are a small number of decentralized countries around the world that lack a formal intergovernmental mechanism to coordinate local government finance issues altogether.
espanolUno de los requisitos esenciales en todo sistema de financiacion descentralizado es la concesion de un grado suficiente de autonomia y corresponsabilidad fiscal a los gobiernos regionales, de modo que estos puedan financiar el nivel de bienes publicos locales que decidan sus ciudadanos En Espana, el sistema de financiacion de las comunidades autonomas de regimen comun incorporo un bajo nivel de corresponsabilidad fiscal entre 1980 y 1996, dada la asimetria entre una amplia descentralizacion del gasto y un modelo de cesion tributaria poco flexible. Desde 1997, y en especial a partir de 2002, la concesion de capacidad normativa y la ampliacion en la cesion tributaria han proporcionado un apreciable nivel de corresponsabilidad fiscal, en el que los tributos cedidos juegan el papel recaudatorio fundamental, constituyendo la imposicion propia un elemento mas de ordenacion economica que recaudatorio. EnglishOne of the essential requirements in any decentralized system of financing is the granting of a sufficient degree of autonomy and fiscal co-responsibility to the regional governments so that they may finance the level of local public amenities decided by their citizens. In Spain, the system of financing of the common regimen autonomous communities included a level of fiscal co-responsibility between 1980 and 1996, given the asymmetry between wide-scale decentralization of expenditure and an inflexible model of tax assignment. Since 1997, and especially from 2002, the conferral of legislative capacity and broader tax assignment have provided a considerable level of fiscal co-responsibility, in which the taxes assigned play an essential role in revenue collection, where the actual taxation is more an element of economic management rather than collection.
Many countries around the world are currently engaged in one way or another in policy debates or reforms of their system of intergovernmental fiscal relations. While the policy dynamics vary greatly from country to country, the focus of such reform efforts can generally be categorized into one of the four main dimensions of intergovernmental fiscal relations, namely the assignment of functional responsibilities (expenditure assignments), the assignment of revenue sources, the provision of intergovernmental fiscal transfers, and the regulatory framework for subnational borrowing and debt. Based on the mantra that âfinance should follow function, â the conceptual starting point of fiscal decentralization reforms is generally held to be the assignment of expenditure responsibilities, which seeks to address the question what functions and expenditure responsibilities should be assigned to each level of government (Bahl 1999). However, a preceding question that is often overlooked pertains to the structure of subnational governments: how should the government sector be structured in order to ensure that fiscal decentralization reforms will result in a more efficient allocation of public resources?
Twelve years into the implementation of the Local Government Code of 1991, it is but opportune to assess how the key features of this landmark legislation has contributed to (or detracted from) achieving the balance between local autonomy and accountability. The literature on fiscal decentralization suggests that these two goals are not incompatible. In fact, real autonomy (in the sense of subnational governments being able to link their spending decisions with their revenue/tax decisions) promotes fiscal responsibility. In the context of the ongoing debate in the Philippines, however, local autonomy has been equated (by many LGUs officials) with the independence of LGUs from central government interference. As such, LGU officials have focused more on securing even higher levels of block grants in order to address the widely perceived vertical fiscal imbalance. However, closer scrutiny of the problem indicates that greater_x000D_ tax decentralization coupled with a well designed intergovernmental transfer system that includes elements of fiscal equalization and categorical grants conditional on the achievement of minimum service standards would better enhance the gains that are forthcoming from the decentralization process while minimizing the risks of macroinstability.
Die Kompetenzverteilung zwischen den verschiedenen Gebietskörperschaftsebenen eines föderativen Staates kann sich erheblich auf das Wirtschaftswachstum auswirken, da es insbesondere die Regionen eines Landes sind, die zu seiner gesamten wirtschaftlichen Entwicklung beitragen. Dies legt einen regionalen Zuschnitt der staatlichen Wirtschaftspolitik nahe. Aus ökonomischer Sicht wird in der theoretischen Diskussion hingegen vornehmlich auf die Effizienzaspekte einer dezentralen Bereitstellung und die Finanzierung öffentlicher Leistungen abgehoben. Selten findet sich das Argument, dass DezentralitĂ€t oder Föderalismus â vermittelt ĂŒber eine höhere Innovationsund ReformfĂ€higkeit des politischen Systems â zu einer Steigerung des Wachstums fĂŒhren. Nach einer Diskussion der theoretischen Ăberlegungen zu Föderalismus und Wachstum wenden wir uns in diesem Beitrag der empirischen Frage zu, welche Bedeutung die Zuordnung von Entscheidungskompetenzen und die institutionelle Ausgestaltung des fiskalischen Föderalismus fĂŒr die wirtschaftliche Entwicklung eines Landes haben. Auf Basis der bisher existierenden theoretischen und empirischen Studien zu Wirtschaftswachstum und Föderalismus werden offene Fragen und mögliche AnsĂ€tze zu ihrer Beantwortung formuliert. <bold>Abstract</bold> The assignment of competencies in a federal state can have a strong impact on economic growth, because the regions of a country particularly contribute to its total economic development. Hence, public policy should be tailored to regional needs. Public economists however mainly focus on the efficiency of decentralized public goods provision and financing; seldom arguments concerning political innovation due to a decentralized experimentation of policies and its impact on economic growth are considered. After a discussion of theoretical arguments on federalism and economic growth, the empirical question is addressed in this paper whether the assignment of autonomy and the institutional design of fiscal federalism influence economic development of a country. On this basis, open question and potential routes of research are formulated.