The public finance in terms of revenue,expenditure and management,has significantly different institutional arrangements in urban and rural areas of China. Dual finance as the composition of binary economy system was formed in the specific historical period after the founding. It experienced the three stages of the planned economy period, the market economy transition period, and people's livelihood fiscal period. Through measuring the dualistic financial strength,it is discovered that dual finance appeared better and worse alternately in the first two stages,binary fiscal improving is the main trend in the third stage. At present,binary finance has new characteristics. The direction of the reform is to realize the equal basic public services between urban and rural areas. The problem of dual finance has to be solved by reasonable fiscal decentralization,coordination of regional differences,increasing the intensity of supporting agriculture,standardizing government behaviors and breaking the barriers of urban and rural dual structure fundamentally.
This dissertation contains three chapters and focuses on the optimal design of fiscal policy, both from a theoretical and from a quantitative perspective. In the first chapter, “Wealth Taxation and Life Expectancy,” I address the optimal taxation of wealth in a class of dynastic overlapping-generations economies with heterogeneous mortality risk. Working individuals are indexed by skills which are private information. Skills not only determine earning abilities but also correlate with survival probability, so that more productive agents on average live longer. The analysis distinguishes between the tax treatment of two possible sources of wealth, namely, savings and bequests, and points to the mortality gradient as a crucial determinant for optimal wealth taxation. Specifically, due to differential mortality: (a) earned wealth should be marginally taxed, (b) transferred wealth via bequests should be marginally subsidized, and (c) marginal tax schedules on bequests and inter-vivos transfers should be separated. I calibrate the model to U.S. data and quantitatively evaluate its tax implications. For the median worker, mortality differences create a force for marginally taxing capital mortality differences create a force for marginally taxing savings by up to 1.7%, and for marginally subsidizing bequests by as much as 3.4%. These figures are robust to the value of the societal intergenerational discount factor and can yield significant welfare gains. In the second chapter, “Taxing Atlas: Using Firm Data to Derive Optimal Income Tax Rates” (joint with Laurence Ales and Jessie J. Wang), we analyze the optimal taxation of top labor incomes. Top income earners are modeled as managers who are heterogeneous across skills and operate a span-of-control technology, as in Rosen (1982). Managers privately observe their skill level, which increases the productivity of both effort and supervision, thus creating a scale-of-operations effect. We characterize optimal taxes in this environment and identify novel determinants linked to firm technology. Our main result is that to be consistent with U.S. firm data, the optimal top income tax rate should be roughly in line with the U.S. tax code, in contrast to previous results in the literature. In the third chapter, “Regional State Capacity and the Optimal Degree of Fiscal Decentralization” (joint with Martín Besfamille), we study the optimal degree of fiscal decentralization in a federation. In our environment, regional governments are characterized by two dimensions of state capacity; namely, administrative and fiscal. These gauge the ability to deliver public goods and to raise tax revenues, respectively. Two regimes are compared: partial and full decentralization. Under partial decentralization, regional governments have no tax powers and rely on central bailouts to refinance incomplete projects. Under full decentralization, regional governments refinance incomplete projects through capital taxes, in a context of tax competition. We show how the optimal degree of fiscal decentralization hinges on the relative magnitudes of each type of capacity. Specifically, for sufficiently low levels of fiscal capacity, bailing out regional governments is optimal regardless of the level of administrative ability. However, a combination of low levels of administrative capacity and high levels of fiscal capacity calls for fully decentralizing tax powers.
Luis Andrés, S. A. Dan Biller, Matías Herrera Dappe
If the South Asia region hopes to meet its development goals and not risk slowing down or even halting growth, poverty alleviation, and shared prosperity, it is essential to make closing its huge infrastructure gap a priority. Identifying and addressing gaps in the data on expenditure, access, and quality are crucial to ensuring that governments make efficient, practical, and effective infrastructure development choices. This study addresses this knowledge gap by focusing on the current status of infrastructure sectors and geographical disparities, real levels of investment and private sector participation, deficits and proper targets for the future, and bottlenecks to expansion. The findings show that the South Asia region needs to invest between US$1.7 trillion and US$2.5 trillion (at current prices) to close its infrastructure gap. If investments are spread evenly over the years until 2020, the region needs to invest between 6.6 and 9.9 percent of 2010 gross domestic product per year, an estimated increase of up to 3 percentage points from the 6.9 percent of gross domestic product invested in infrastructure by countries in the region in 2009. Given the enormous size of the region's infrastructure deficiencies, it will need a mix of investment in infrastructure stock and supportive reforms to close its infrastructure gap. One major challenge will be prioritizing investment needs. Another will be choosing optimal forms of service provision, including the private sector's role, and the decentralization of administrative functions and powers.
Cinzia Di Novi, Massimiliano Piacenza, Silvana Robone, Gilberto Turati
This paper aims at investigating empirically the impact of fiscal decentralization reforms on inequality in well-being. In particular, we look at the effects on health inequalities following the assignment of larger tax power to the Italian Regions for financing their health expenditure, starting from the end of the Nineties. Exploiting large differences in the size of the tax base across Regions, we find that fiscal decentralization processes that attribute a greater tax power to lower government tiers, besides reducing inefficiencies of healthcare policies, seem to be effective in reducing also within-regional disparities in health outcomes. However, the degree of economic development � on which depends the actual fiscal autonomy from Central government � significantly affects the effectiveness of these reforms and highlights the importance to take properly into account the specific features of the context where the decentralization of power is implemented.
Recent theoretical research suggests that financing sub-national governments’ expenditure out of own revenue sources is linked to more responsible budgeting, because the financial implications of spending decisions then are internalized within a jurisdiction. We test this proposition empirically on a sample of 23 OECD countries over the 1975-2000 period, and find evidence in line with the hypothesis that greater revenue decentralization (measured as sub-national governments’ share of own source tax revenues in general government tax revenue) is associated with improved sub-national government budget deficits/surpluses. This finding is cross-validated with a novel, independent dataset consisting of all 34 OECD member states from 2002 to 2008.
We study the optimal degree of fiscal decentralization in a federation. Regional governments are characterized by their abilities to deliver public goods (administrative capacity) and to raise tax revenues (fiscal capacity). Two regimes are compared on efficiency grounds. Under partial decentralization, regional governments rely on central bailouts to complete local projects in financing needs. Under full decentralization, marginal financing is achieved via local capital taxes. We show that the presence of sufficiently low levels of administrative capacity is a necessary condition for full decentralization dominance. This condition may also be sufficient, depending on the projects' characteristics. Some extensions are presented.
The Malaysian state is usually portrayed as centralized, top-heavy, and far-reaching. Bureaucrats in the powerful Prime Minister 's Office or Economic Planning Unit design ambitious programmes for the country, then government agencies headquartered in the nation's capital implement them in all corners of Malaysia, from Perlis to Sabah. While true to a certain extent, this depiction overlooks the fact that Malaysia has a federal government structure. In addition to a central government centred in Putrajaya, the country has thirteen state governments that are responsible for particular jurisdictions; receive revenue from specific sources; and have constitutionally-stipulated responsibilities. They are important providers of goods and services, and can play a role in creating an enabling environment for business. However, Malaysia's governance structure is heavily weighted towards the federal government, which receives the bulk of revenue and is responsible for most public services. In fact, the country is one of the world's most centralized federations, with the centre receiving almost 90 per cent of all government revenue. And, above and beyond duties for fiscal, monetary, and trade policy, the federal government is responsible for most types of infrastructure, science and technology policy, and all levels of education. While the image of a strong central state may hold appeal, an excessive concentration of responsibilities may not always be optimal. Public finance literature holds that an appropriate attribution of responsibilities and revenue sources between levels of government can enhance welfare. For example, while some services benefit from economies of scale and are best provided nationally, others require detailed knowledge of local conditions and are best supplied locally. Over the past thirty years, a “Silent Revolution” of decentralization has swept the globe, as sub-national governments have been empowered with additional responsibilities, autonomy, and revenue. However, Malaysia constitutes an important exception. Unlike neighbouring Philippines or Indonesia, that had to construct new levels of government to decentralize, it already has an established federal system. Despite this, Malaysia has continued to centralize responsibilities at the national level. If it continues, this trend will stifle the vital role that state governments can play in creating an enabling environment for business and leveraging local-level knowledge to foster economic growth.
Democratic movements, market mechanisms, and decentralization reforms have been at the heart of transformation of former USSR republics. Republic of Moldova was not an exception. The initial argument behind such fascination with these reforms stems from the idea that market mechanisms in an open and democratic society will facilitate the efficient and effective resources’ allocation, compensating for interim distributive inequities and macro-economic challenges. Such a natural experiment has been in progress for more than 20 years in the Republic of Moldova. During these 20 years Moldova experienced democracy in its infancy, democratic return of communism, and once again return to democracy and its core ideas and values. Public administration system along with public finance and budgeting systems experienced comparably abrupt changes in their development. This qualitative study of Moldovan public administration and finance frameworks will provide an evaluative description of these three distinct, but interrelated periods in Moldovan history of independence and development of public administration and public budgeting systems. Such description will allow for evaluation of the public administration and public finance systems’ developments in Moldova as well as reasons of success and failure of these reforms.
The sustainable development became a goal for knowledge society, but one of the main question in literature remains as how close is the relationship between economic dvelopment, knowledge society and local governments' level. Given the great diversity of situations and frameworks both across countries and within them in the European Union, I consider that each country must have own policies designed to implement process of decentralization with the commitment of "healthy" economy in a society dominated by the technology and innovation. In this context, the problem occurs in decentralization should be managed on two levels: on the one hand in terms of central-local budgets relations, and on the other hand, in the local public finance structural plan. The paper will try to emphasize the connection between decentralization, local economic sustainable development and knowledge society, taking into account an overview of this three aspects and empirical evidences. In this regard, I will use the background offered by literature and the official statiscal data for analysis to identify the variables which explain decentralization and local economic development in the knowledge society. I estimate the analysis to confirm the hypothesis that there are good aspects, but also deficiencies that require solutions and budgetary policy options as part undisputed positioning local government finance as an engine of development of the whole nation. I consider that the paper can be a useful viewpoint in understanding local public finances in decentralization, which allows researchers to include other sources of information for researching an in a much more complex approach.
The changes in the system of intergovernmental fiscal relations in Bulgaria commenced at the beginning of the 1990s with the enactment of legislation on local self-governance and the first timid attempts at an expenditure and revenue assignment between the levels of government. The process began to gather momentum in 2002 when the government adopted a Concept paper on fiscal decentralization and an action plan on its implementation. A number of key reforms were legislated with the aim of broadening the municipal own-sources revenue base and increasing local government revenue autonomy. Dedicated action to set a decentralized public finance system in place resulted in a visible improvement of financial self-sufficiency of local authorities. Although still low in a European context, the values of fiscal decentralization indicators have gradually risen over the years, which is indicative of the success of the reform. The purpose of this paper is to overview the development of the process of fiscal decentralization in Bulgaria in the period 2003-2012 through examining its key aspects – expenditure responsibilities, revenue assignment and intergovernmental transfers – and to assess the policy options for addressing the current problems of local finance system. DOI: 10.5901/mjss.2014.v5n23p342
ABSTRACTIn an effort to reduce the cost and size of government, service delivery has become more decentralized, flexible and responsive. One of the strategies for reducing the cost and the size of service delivery is the establishment of special districts. Community Development Districts (CDDs) are a particular type of special created to manage and finance infrastructure services that accommodate new development within the State of Florida. They have significant implications for service delivery since they are considered flexible institutional choices for infrastructure service provision. In trying to assess the CDD performance this study aims at identifying the contribution of the to service delivery and at determining whether they represent an effective and responsive institutional choice for service delivery. Findings demonstrate that the CDD institutional model is both an effective and responsive service delivery tool but only in certain circumstances.INTRODUCTIONSpecial represent an important component of the American governing structure. They are independent, special- purpose units of local government (other than counties, municipalities, townships or school districts) that have administrative and financial independence from general-purpose governments such as counties and cities (U.S. Census, 2007). These entities of government are established by a legislative body to provide specialized services within limited boundaries (Mitchell, 2001).Special are the most common form of local government. According to the U.S. Census (2012) there are 89,004 local governments1 in the United States. Special represent 41.8% of the total number of local governments, followed by municipalities with 21.6%, townships with 18.4% and counties with 3.4%. Besides being the most common form of local government, special have also increased dramatically in the last six decades. Districts more than tripled their number in the last 60 years in comparison with a 8.6% increase for municipalities and a slight decrease of 0.7% for counties and 4.9% for townships. This increase in the number of special is explained by numerous reasons: service delivery for certain areas is better handled by special (Bollens, 1957), were created as a consequence of legal, institutional and political factors (Foster, 1997) and are financial mechanisms (Leigland, 1994; Porter, Lin, Jakubiak & Peiser, 1992) whose proliferation overcomes the fiscal restrictions placed on local general-purpose governments (Bowler & Donovan, 2004; McCabe, 2000).The extant literature distinguishes special purpose governments by different names. Eger III (2006) classifies special purpose entities into three main typologies: ''public authorities,'' ''special districts,'' and ''government corporations.'' He asserts that the degree of financial and governance autonomy explains the diversity of special-purpose governments. Therefore, special purpose entities range from controlled authority which is the least autonomous combination of financial and governance criteria to the most autonomous entities called directly accountable (Eger III, 2006). Porter et al. (1992) acknowledge that special are known by different names such as authorities, and commissions. Foster (1997) divides special-purpose governments in two categories: districts which are local governmental entities with the power to tax and levy special assessments and public authorities which are government corporations without property taxing powers. Even though the aforementioned typologies of special-purpose entities - ''public authorities,'' ''special districts, ''government corporations,'' boards and commissions are used interchangeably in the extant literature, this study will focus on the category of independent special or those special- purpose entities that have both high governing and financial autonomy in Eger's III (2006) words. …
This dissertation aims to explain the nature, cause, and consequence of informal fiscal decentralization in China since 1994. The 1994 tax reforms intended to strengthen the central government taxing power by increasing tax revenue through the tax assignment system. China also prohibited local government debt taking, while increasing intergovernmental transfers between the central government and local government. These series of China's centralization reforms in 1994 have realized uneven success. Central government tax revenue was improved significantly. However, local government still takes debt through the financial platform companies. The increased intergovernmental transfers did not decrease regional disparity, which is one of the goals of the central government. These are the unintended consequence of the centralization reform that this study tries to account for. This study shows that revenue centralization unintentionally aggravates problems of local public finance. While maintaining the budget balance according to budget law, local government has carried out competitive economic growth and expenditure management. The ability to manage expenditure and attract investment is the criteria employed to evaluate the accomplishment of local leaders. This study finds that prohibition of local government debt in China is constrained by their social network. This norm influences the strategy of local governments to increase their debt taking beyond the realm of formal rules under the competitive environment. This study also demonstrates that centralization of revenue made local governments increasingly resort to intergovernmental transfers, which in turn fail to reduce inequality across jurisdictions. This study argues that an informally decentralized state reduces the merits of the decentralization. The informal consequence of the political and fiscal systems in China result in local leaders that acquire the medium level of change in power, while pursuing fiscal decentralization and maintaining political centralization. However, the unintended consequence is the retreat of the fiscal system, such as the increased fiscal instability and large gaps across jurisdictions.
This article examines the relationship between economic integration and fiscal decentralization for Argentina and Brazil. Economic openness adds costs and benefits to fiscal decentralization, beyond those analyzed in closed economies. The relationships among variables with panel data for the period 1988–2005 are estimated. The innovation of the article lies in considering decentralization at the level of states/provinces. In Brazil, the effect of openness on decentralization is negative and significant, both for expenditures and revenues; in Argentina, the effect is negative or not significant. This difference between countries is based on the different structure of subnational government financing.
Provides the basic foundation for understanding intergovernmental finances by (1) discussing why getting municipal finance right remains key to achieving a nation’s broader goals of economic growth, macroeconomic stabilization, and, for some countries, national cohesion among diverse populations; (2) summarizing the key considerations of alternative governance structures, as well as fundamental questions related to what role municipalities should play in a country’s revenue and expenditure systems; and (3) examining the role of government-to-government grants policy and the tools for ensuring accountability between the various levels of government and between the municipality and its citizens. A strong correlation exists between decentralization and growth in gross domestic product (GDP), though findings relating to macroeconomic stability and the relationship between fiscal decentralization and public sector size remain mixed. Case studies from Nepal, Poland, Egypt, Bosnia and Herzegovina, Sudan, South Africa, and Saudi Arabia show the wide variety of decentralization models utilized world-wide.
TWith the help of the available literature, the paper attempts to assess critically the main problems of municipal finances in India and to bring out the challenges that the municipalities face with respect to revenue generation and expenditure management. The main findings suggest that the urban local bodies in India are confronted with lack of proper decentralization of functions and finances, inadequate revenue generation, expenditure shortfalls leading to poor service delivery. It also analyses the suggestions and recommendations that have been offered in the literature to cope with these critical challenges relating to urban finance.
Abstract In this paper we explore some of the policy issues related to the provision of primary and secondary education in the United States from an economic standpoint. We begin with stylized facts and a brief reference to the uniquely decentralized financing and delivery of public education in the United States, and the resulting issues of equity and quality that arise. As a reference point we review the basic efficiency and equity arguments for public financing and the provision of public goods in general, and education specifically, both of which suggest that current practices are unlikely to be efficient or equitable. These are issues that have motivated a number of policy avenues—the accountability movement, including No Child Left Behind, as well as recent efforts to establish higher and uniform standards for our public schools. We then turn to the sizable body of literature assessing school performance. We include an empirical example of this approach for Texas primary and secondary schools, with a focus on the many challenging issues involved with modeling and assessing educational performance. Our application demonstrates that research findings are highly sensitive to modeling choices, suggesting that a mixed methods approach is most likely to lead to effective education reforms.
We provide novel insights on the decentralization of optimal outcomes under monopolistic competition with nonseparable utility, variable demand elasticity, and endogenous firm heterogeneity. Relative to the unconstrained optimum, equilibrium firm selection is too weak, average firm size is too small, low-cost firms are too small, and high-cost firms are too large. The unconstrained optimum can be decentralized through differentiated production subsidies to producers financed through lump-sum taxes on entrants and consumers. When differentiated subsidies and transfers from entrants are not viable, the constrained optimum can be decentralized through a common production subsidy financed by a lump-sum tax on consumers.
Today, municipal bonds are a critical source of capacity building in the United States. The bond market exceeds $4 trillion and is comparable to one fourth of the national debt or the current-dollar market value of the nation&s;s projected output of goods and services in2012. In the United States&s; decentralized political system, the municipal bond has been an important asset in the growth of the national economy. Liberal theory lays out three potential avenues for cities to play a role in world politics either by importing to them the domestic capacity of the state or as relatively autonomous players in the world economy. The urban role in the national economy emerged in two distinct stages. The most significant difference between these two stages is the federal government&s;s efforts, beginning in the late 1960s, to limit the use of intergovernmental tax immunity. The financial management organization, the Government Finance Officers Association (GFOA), held that the legislation violated the Sixteenth Amendment.
The year 2013 is already the ninth year of implementing fiscal decentralization in the Slovak Republic. The aim was to ensure independence as well as responsibility of subnational governments and improve the ability to finance their original competences from own sources. As decentralization leads to growth of imbalance intergovernmental transfers are the instruments used by central government to reduce fiscal disparities and fill the gap between the spending needs and fiscal capacity of some local authorities. Tax sharing system in Slovakia, is an important tool of horizontal fiscal imbalance equalisation. Despite the title, shared taxes play the role of unconditional grants if even they are formally labelled as local government own revenues under current legislation. In this paper we examine the allocation of personal income tax share as an instrument of regional policy and factors affecting interregional disparities in Slovakia. The paper presents some results of the research project VEGA1/0822/11 Redistribution of financial resources in the decentralized fiscal system in Slovakia.
The share of public investment spending at sub-national level has been slowly but steadily increasing over the past two decades across OECD countries. Degrees and forms of decentralization in infrastructure vary widely across countries, but all governments share a common objective, that is to mobilize authorities along shared infrastructure policy objectives. This involves managing a complex web of vertical (across levels of government) and horizontal (across sectors and across the same levels of government) interdependencies, which require substantial coordination among actors to ensure policy alignment and quality investments. Asymmetric information, multiple principal-agent relationships and significant differences in capacities across levels of government in financing and implementing infrastructure investments have posed important political economic obstacles to improving the efficiency and effectiveness of public investment outcomes. This paper will look at persisting coordination challenges more closely by using the results of a recent OECD questionnaire and case studies. It will identify remedies OECD and some selected non-OECD countries have found that work to address coordination issues. This paper will demonstrate that ultimately systematic collection and sharing of information is the key to making coordination work.
This paper will review the key elements required for effective decentralized implementation of rural roads programs. It will review the range of options available and the evidence for successful implementation where it exists. Section 2 makes the case for the importance of rural roads and sets out the evidence for the socio-economic benefits. Section 3 addresses the responsibilities for implementation and critical importance of having clarity over network ownership. Section 4 highlights the difficulties of finance, particularly for longer term maintenance, and sets out options for improving allocations and the reliability of receipt for those allocations. Section 5 sets out the project cycle from planning, design, implementation, maintenance and subsequent evaluation. Section 6 summarizes the key issues and highlights the main policy considerations.