During the past three decades, a large number of countries have introduced reforms to decentralize public decision making. Such reforms have proved controversial. Critics of these reforms argue that decentralized provision of infrastructure enhances vulnerability to corruption. Proponents of these reforms counter that corruption arises from lack of people empowerment and decentralization by bringing decision making closer to people shines sunlight on government operations and empowers people to hold government to account and thereby offers potential for combating corruption in the long run. They further state that decentralized provision of infrastructure holds a great promise in upgrading infrastructure to underserviced especially rural areas with local self-government. In theory such decentralization is also expected to improve integrity of such operations especially in the event of local financing. These debates, nevertheless, remain unsettled as empirical evidence on the impact of decentralization on infrastructure provision is scant or non-existent. Empirical work is hampered by a lack of reliable data on the incidence of corruption. This paper presents conceptual underpinnings of the impact of decentralized provision of infrastructure on the incidence of corruption and synthesizes scant available empirical evidence to make a case for further empirical research to document the real world experiences to update our current state of knowledge on this subject. Much work lies ahead to limit our wide zone of ignorance in this area.
This paper proposes an economic logic for underpinning decentralization in the infrastructure sectors. It starts by detailing the definition of the infrastructure gap and the methodologies to calculate it. It provides some global trends for developing countries in terms of the gap and briefly discusses financing possibilities for developing countries to address the gap. Then it turns to the discussion of the link between the infrastructure gap and decentralization, providing a typology infrastructure subsectors and possible jurisdiction of service provision. It briefly discusses the potential for raising local finances for provision and the relationship between poverty and provision. While it is very difficult to provide blanket recommendations on decentralizing the various sectors and respective subcomponents of infrastructure services, the paper offers a set of guidelines to direct policymakers in their decision to decentralize or not. First, decentralization is intrinsically neither good nor bad for infrastructure; its impact depends entirely on the incentives facing the various decision-makers in the decentralization process; second, decentralization is most fruitful when the decision-makers bear the financial and political cost with respect to design, finance, operation and maintenance; and, finally, political leaders are accountable to their constituents for the manner in which they spend tax revenues and how they use and allocate transfers from the central government.
The subnational dimension of infrastructure emerges as one of the greatest challenges in contemporary public finance policy and management. Given the localized nature of most infrastructures, ensuring its efficient provision represents a challenge for all countries irrespective of their level of centralization or decentralization. This paper introduces the fundamental questions surrounding the provision of infrastructure in decentralized settings and summarizes the findings from a collection of original essays prepared for this volume by a set of worldwide experts on this subject with the objective of advancing our understanding of the interplay between decentralization and infrastructure. More specifically, the paper discusses the extent of infrastructure gaps and the quality of subnational spending; inquires how functional responsibilities, financing and equalization can be designed; discusses sector-specific arrangements; drills down to the key steps of the public investment cycle and management aspects; and analyzes the political economy and corruption challenges that typically accompany decentralized infrastructure projects. The paper also presents avenues for the strengthening of decentralized public investment and infrastructure provision processes, concluding that they need to be country-, sector- and place-specific. While it is clear that institutional arrangements for infrastructure management will vary across countries, in all cases several decision-making steps need to be coordinated across levels of government in order to ensure efficiency in delivery, equity in spending, and accountability over final results.
The economic problem for many public companies, responsible for providing the water service to human concentrations is high risk. The weaknesses and strengths of the organization and the threats and opportunities that the environment offers require detailed analysis for decision making. The establishment of the level of growth of the Utility of Water and Wastewater shall be supported to reduce their risks. The process of decentralization and divestiture of public bodies such conditions has led to completely new water companies. This process involves gradually reaching autonomy of public agencies. This paper shows a financial analysis of a body of water operator as a basis for achieving sustainable growth. One important result obtained in the analysis is that growth is being financed by the utilities is 56.92%. Thus, a very important part is financed with external resources.
Johnatan Rafael Santana de Brito, JoĂŁo Ramos Matos Filho, Edward Martins Costa
the Brazilian tax structure has specific characteristics and the performance level of government. Although there was a better regulation of these transfers after the enactment of the Fiscal Responsibility Law, it is observed that the amount of resources transferred to the municipalities of Rio Grande do Norte is quite high. In light of the theory of federalism and fiscal decentralization, in particular, the theories related to intergovernmental transfers seek to diagnose the transfers from the systematization of information as to the origin, value and destination. We used the econometric model of Dynamic Panel System GMM in diagnosis and verification of the impact of transfers on public finances of municipalities in the RN, a dynamic econometric model that captures the lagged effects of variables making use of adjustment mechanisms based on a model differences distributed so that the dependent function is a concatenation of variable contemporary and out of phase. The data point to what is predicted in theory: an increasing trend of dependency. The paper presents some proposals for the transfer system and the composition of spending in order to contribute to greater tax efficiency.
The District Development Fund program or model was introduced in Lao People Democratic Republic in 2005, with the technical and financial support of United Nations Capital Development Fund, as a core part of the Governance and Public Administration Reform Programme, which was jointly supported by United Nations Capital Development Fund and United Nations Development Programme. The District Development Fund program was designed to be an effective approach and support methodology suitable for a low capacity environment in order to help deliver better public services to rural and remote communities in Lao PDR. The DDF has since been expanded to fifty two (52) Districts (of a total of 148 Districts) across the country. DDF aims to sustainably improve local public services delivery through the strengthening of capacity of local district administration and demonstrating improved financial management systems and procedures that can contribute positively in this objective. It does this by providing both discretionary development grants together with capacity development and support to improvements systems and procedures for local development. However, there has been little external research undertaken to date on âassessment of the District Development Fund program as an effective approach to strengthen public service improvement for decentralized and better service delivery in Lao PDR, and whether the District Development Fund program has positively affected the capacity of local authorities to delivery prioritized local public servicesâ. This article addresses this by looking at the empirical results from the DDF program and draws on experiences on how DDF program has been operating and contributing on the ground in building local capacities, in financial management, planning and budgeting, to enhance the local authoritiesâ ability to finance local priority services. The DDF for government has become the viability and positive results of empowering local authorities and communities as part of public administration reform, that is not only a government fund transfer mechanism a form of fiscal decentralization but also has proven to be very well suited to the low capacity environment in Lao PDR A better people-focused service delivery has mostly been achieved by empowering sub-national administrations to take a more effective role in leading local socio-economic development, which is to bring about tangible improvements in public services to people and a real reduction in local poverty. The most significant lesson of the DDF experience in Laos has been its ability to achieve results that have led to improvements in pro poor service delivery combined with improvements in the capacity of local administration in planning, budgeting and monitoring services. A critical lesson in achieving these results has been ensuring that new systems and procedures fully align with existing government processes . This not only helps to improve capacity development but also ensures innovations, which is more cost effective and scalable in future by working through existing governance systems. Greater district and community oversight and accountability result in funds being well spent with minimum leakages. This article, to a large extent, is entering new ground where there is little other independent research or documentation available. Thus the approach relies on conducting structured evaluation dialogue with the direct stakeholders, including the Ministry of Home Affairs, Governance of Public Administration Reform /District Development Fund project team, national and local practitioners and representatives of the communities involved, combined with a review of the available documents and data. The methodological tools used were interviews, workshops, focus group discussions, data analysis and document review. Keywords: Service delivery, Building capacity, Financial management, Planning and budgeting management, Local authority, District development fund approach.
David Nyange, David Tschirley, Hussein Nassoro, Abeid Francis Gaspar · 8 authors
EXECUTIVE SUMMARY Rural taxation policy is a major issue in many countries of Africa as they pursue more decentralized forms of governing and at the same time work to enhance the effectiveness, efficiency, and fairness of their tax systems. Tanzania has struggled with this issue since at least 1962, when it expanded countrywide the limited decentralization that had occurred under the colonial regime, then abolished LGAs in 1972 in favor of âMadaraka Mikoani,â only to reinstate them and enshrine them in the constitution in 1984. With wide powers to set tax policy and practice at local level, made possible by the Local Government Finance Act (LGFA) of 1982, Tanzania soon experienced a dizzying array of taxes and fees, with dramatically differing rates across LGAs. The situation became so extreme that some claimed that Tanzania by the late 1990s had âabout 110 local authorities ... each with a different tax systemâ (Fjeldstad and Semboja 2000). A sustained effort at reform culminated in 2003, when the âhead taxâ and a series of ânuisance taxesâ were abolished, and the produce cess was limited to a maximum of 5% (compared to rates as high as 20% in the past). Though the resulting system of local taxation is substantially less complex, less variable across LGAs, and less onerous than it was prior to these reforms, important problems remain, and stakeholder demands for further reform have been growing. Since the produce cess became the most important source of local revenue after 2003, much of the demand for reform has focused on it. In response to these concerns, GoT included a commitment to âreduce or abolishâ produce cess when it signed the G8âs âNew Alliance for Food Security and Nutritionâ declaration. This study took advantage of a newly available database of LGA revenue and expenditure and complemented it with fieldwork in 27 LGAs with varying levels of reliance on the produce cess. Its overall purpose is to generate new empirical understanding that contributes to the on-going debate on produce cess and that informs the GoT on pros and cons of potential options for reform. Key new findings include: 1. Dependence on the produce cess varies widely among rural LGAs, from 0% of total locally generated revenue in Ngorongoro to 90% in Urambo; 2. Relative to the value of their marketed production, traditional export crops generate more than three times as much cess revenue as do food crops; 3. Much potential cess revenue goes uncollected: nationally, LGAs collect not more than one- quarter of the revenue potentially available from produce cess charges. This low level of collection reflects both limited human and institutional capacity at local level and widespread tax evasion, some of it likely featuring the collaboration of some local officials; 4. Because it is charged on the gross value of production, current cess rates can result in very high tax (even confiscatory) on net revenue among farmers that use a large amount of inputs but experience small net margins; Confirmed previous findings include: 1. With the reforms of 2003, local revenue fell sharply as a share of total LGA revenue, from 20% to a current level of 7%. Central government transfers provide the rest. Such a low share of locally generated revenue makes meaningful decentralization quite challenging. 2. Nationally, cess contributes only 1.8% of total LGA revenue, with other local taxes accounting for 5%; 3. Yet cess is the largest source of rural LGA own revenue, at 43%. Because this revenue is very flexible (it does not come with the spending dictates that accompany central government transfers), it is highly valued by local authorities, and is largely used for Councilor allowances and other âcosts of doing businessâ; 4. Cess rates are highly variable across LGAs, varying by a factor of as much as four (Beans in Handeni at Tshs 1000/bag vs. Lushoto at Tshs 4000/bag); 5. Tax evasion is widespread and likely a more serious problem than tax avoidance; 6. But avoidance â farmers or traders or others changing their production and marketing behavior due to the tax (and especially due to the variation over space in tax rates) â can be a serious problem in particular instances. For example, some sugarcane growers in Mvomero are considering shifting their farming activities to Kilombero due to lower cess rates in the latter; and farmers and traders report that traders favor some districts over others in their food trade due to differences in cess rates; Reform options include: 1. Abolish cess in one step 2. Gradual phasing out of cess 3. Reduce the cess rate, broaden its base, and improve capacity for collection 4. Institute a differential cess for food- and non-food crops 5. Completely remove cess in food crops, leaving it only for traditional and other export crops. Simple simulations of option 3 combined with option 4 (3% for traditional cash crops, 2% for food crops) indicate that LGAs would need to improve their efficiency in collection (the share of potential cess that is actually collected) from the current estimated 28% to 41% to maintain revenue, and would increase revenue with further improvements. Complete elimination of cess on food crops (option 5) would make LGAâs jobs quite challenging, especially if rates were reduced on traditional export crops. Leaving the rate on these crops unchanged at 5%, LGAs would have to achieve nearly 60% efficiency in their collection to maintain their current revenues; dropping the cess on traditional export crops to 3% while eliminating it on food crops would require an almost certainly unattainable 83% efficiency. Based on the analysis in the paper, and in keeping with the view that improvement in tax systems is a long-term process featuring continuous, incremental improvement, the report suggests that option 3 combined with option 4 â reducing the rate of the cess (thereby reducing its variability over space), introducing a slight differential between food crops and traditional export crops, and broadening the cess collection base by working continuously to improve the human and institutional capacity of LGAs to collect taxes in efficient and fair fashion, is likely to be the best option for Tanzania. Piloting of technological and institutional innovations such as the use of mobile money for cess payment are proposed as one way to address both the inadequate local capacity and the scope for corruption in cess collection.
This study focuses on the subnational governmentsâ revenues, their productivity and contribution to the total budget of the region. In Ethiopia, the regions get significant amount of revenue from the central governmentâs block grant and their revenue sources generate very small amount of revenues and their tax bases are also very narrow. The study describes the revenue contribution of tax and non-tax bases separately and their trends throughout the periods. Moreover, it distinguishes specific revenue sources and their productivity, consistency of revenues from specific sources to finance local needs, and challenges in administration of their own revenue sources. Key w ords : Fiscal federalism, block grant, tax revenues, non-tax revenues, government budget.
Fiscal decentralization has brought many aspects of influence to China's economy,in this context,this paper discussed the relationship among fiscal decentralization,the government relationship and house price. First,we discussed house price determination mechanism under the partial equilibrium framework. Theoretical models show that house price depends on the degree of fiscal decentralization,the costs of construction investment,consumers' disposable income and so on. Then,by using the panel data of house price and the economic fundamentals of 30 provinces in China from 1999 to 2011,empirical studies show that fiscal decentralization and local government competition play a significant role in increasing house price,but the role exhibited different influence in different regions. In our opinions,to decrease the speed of house price growth,reducing the intensity of current fiscal decentralism appropriately and the incentives of local government land finance,promoting the reform of property tax which estate property acts as the core and transforming local government functions should be carried out.
The formation of land finance is both related to the financial system and tax structure of China and is closely related to both the objective change of central government and the goal composition of local governments. This paper uses Game Theory Methodology to analyze the earnings function of each main body of the interests and its strategic choice and reveals the intrinsic mechanism and evolution progress of the finance formation of local governments. Research results show that the land finance is easily formed when central government prefers social fairness to choose centralized power,that land finance can not be formed when central government chooses decentralized power to make local governments get stronger incentive to promote local economic development,and meanwhile,the game between local governments and developing merchants depends on the choice of the officials of the local governments. This paper suggests( 1) improve the institutional design of tax distribution system,( 2) enlarge the penalty on the local governments for illegal expropriation of land,( 3) reform the traditional cadre evaluation by GDP.
Jackson O Otieno, Paul A. Odundo, Charles M. Rambo
The Local Authorities Transfer Fund (LATF) is an intergovernmental transfer system, supplementing the financing of service delivery within the framework of fisc0al decentralization. LATFĂąâŹâąs objectives are to improve service delivery, enhance financial management and accountability as well as reduce debts accumulated by local authorities. The purpose of this study was to establish the influence of LATF on service delivery by local authorities, focusing on Siaya Municipal Council. We gauged residentsĂąâŹâą perspectives about improvement of water supply, garbage collection, and sewerage services. We sourced primary data from 188 household heads and 202 market traders. The study found that 63.2% of the participants believed that there was no change in water supply consistency, while 69.5% reported the same about adequacy of water provided by the Council. Besides, 55.6% of the participants indicated that garbage collection had deteriorated, while 63.8% said the same about sewerage services. The findings suggest that access to LATF resources over the preceding decade had not improved service delivery in Siaya Municipality. Delivery of services was constrained by political interference (57.4%), procurement malpractices (44.1%), weak revenue base (38.7%), and understaffing (33.1%), among other factors. In view of this, local authorities should shape up to meet the current service demand, as well as gear up to address the needs of urban population, which is set to grow over the coming years.
An exciting paradigm shift is emerging in developing and transitional economies. With increased decentralization and urbanization, local governments have taken on greater responsibility in the provision of basic municipal services. To help fund education, solid waste management, water and sanitation, and other economic development projects, municipalities have turned to innovative financing mechanisms to meet local demand. Since central government support cannot finance the service needs of most municipalities, local governments are increasingly turning to: own-source revenues such as taxes, licenses and permits, user fees for services, and municipal assets; and borrowing from private capital markets.
Since the seminal work of Oates (1972) on scal federalism, a central question of public finance has been which level of a federation should be as- signed the provision of public goods. In this paper we study the problem of a government that is to choose the optimal centralization/decentralization mechanism for the final treatment of municipal solid waste. We analyze incentives, equilibria and implications of the governance framework for the disposal of waste. The key decisions revolve around the mobility of waste and the externalities (pollution) associated with its disposal, be it incineration or landfill. Moreover, if the Regions are characterized by different levels of efficiency in the processes they apply to the final treat- ment of waste, in theory a certain degree of waste mobility across regions should allow to reap the benefits of higher efficiency. On the other hand, as transportation and other environmental costs implied by mobility and concentration are significant, a trade-off emerges. Our model evaluates the implications of that trade-off for the optimal degree of decentralization in waste management.
The local governance in Ghana has been practised using different models over the years. These models were introduced by the colonial government which was highly centralised. The dynamics of local government in Ghana changed significantly in 1988, when decentralised system of local government was introduced. Several dimensions of Metropolitan governance in Ghana have been considered ineffective and among them is the fiscal administration which attracts several unpleasant comments from the citizenry. Notwithstanding the fact that the Local Government system in Ghana was instituted in 1852 and independent town councils were established in Sekondi- Takoradi and Kumasi in 1894 and 1935 respectively; none of them is free from this allegation. The purpose of the research was to analyse the financial systems of the metropolises. The Metropolises on average generate just about 45 per cent of its total income internally. This is a case of overdependence on transfers from the Central government and other external sponsors. Therefore, it is not strange that the Metropolitan governments are financially controlled by the Central government. The uninformed mind may prescribe more local fiscal empowerment for the Metropolises as the way forward. However, empowerment with poor fiscal administration could hardly turn the tide. As the study revealed, the system of fiscal administration is influenced by political, economic, social, technical administrative and attitudinal factors. The local tax structure has only one main item namely immovable property tax which is poorly administered in terms of tax base determination; low rate impost and poor mobilization. The large immovable property tax is left in arrears and eventually written off. The metropolitan financial performance also needs improvement from within. MMDAs, introduction of new revenue items and increase in rates as basis for increasing internal revenue, hence many of them have expanded revenue structure with several unproductive items. This does not make local revenue mobilisation cost effective. The MMDAs over depend on external funds for their operation, thus compromising the autonomy of local authorities. To overcome this might require a long term fiscal strategic plan which should reconsider the fiscal empowerment relationship between central and local government. The local authorities on their part should shift toward partnership investment as a means of achieving financial breakthrough otherwise the decentralisation system would become a mirage to local residents who initially accepted it as system for accelerated local development.
From the perspective of local deficit financing,this paper explores the internal logic working between fiscal decentralization and local government's land finance. Theoretical analysis shows that local deficit expansion caused by fiscal decentralization in China has become an incentive for local governments to grab off-budgetary financial revenue,which impels them to take an active land finance strategy to increase local fiscal revenue. The empirical test supported by provincial panel data also proves that the fiscal decentralization and local deficit financing both have obvious positive driving effects on the land finance.
From the perspective of local deficit financing,this paper tries to expound the internal logic between fiscal decentralization and local government 's land finance. Theoretical analysis shows that: fiscal decentralization in China aggravates local deficit financing, and the latter becomes an incentive for local governments to grab offbudgetary financial revenue, which will impel them to take active land finance strategy to increase local fiscal revenue. At the same time, our empirical test among them using provincial panel data shows that fiscal decentralization and local deficit financing both have obvious positive driving effects on land finance. Finally, we put forward a series of suggestions on land finance governance respectively from the following 5 aspects: deepening tax distribution reform, improving local fiscal revenue structure, changing land finance formation mechanism, promoting administrative performance evaluation mechanism and strengthening budget supervision.
The research of fiscal decentralization is based on the reconstruction of measurement index.In view of the combination of fiscal decentralization principles and its reality in China,the paper devises seven measurement indexes of fiscal decentralization,makes an empirical analysis of their corresponding effects on economic growth,and estimates the economic effect of the fiscal decentralization reform in counties directly administered by province.The paper gives support to the significance of revenue and expenditure decentralization within the system and gives decision-making power to county-level governments.However,the contribution of full-covered measurement index of fiscal decentralization to the economic growth is not ideal.Therefore,it is urgent to endow the county-level governments with financial resources and decision-making power within system,to tighten the control of their non-budget financing,and to intake the counties administered by province into the new type of fiscal system featuring the match of financial power and responsibility.
The implications of delegating fiscal decision making power to sub-national governments has become an area of significant interest over the past two decades, in the expectation that these reforms will lead to better and more efficient provision of public goods and services. The move towards decentralization has, however, not been homogeneously implemented on the revenue and expenditure side: decentralization has materialized more substantially on the latter than on the former, creating vertical fiscal imbalances. These imbalances measure the extent to which sub-national governments' expenditures are financed through their own revenues. This mismatch between own revenues and expenditures may have negative consequences for public finances performance, for example by softening the budget constraint of sub-national governments. Using a large sample of countries covering a long time period from the IMF's Government Finance Statistics Yearbook, this paper is the first to examine the effects of vertical fiscal imbalances on fiscal performance through the accumulation of government debt. Our findings suggest that vertical fiscal imbalances are indeed relevant in explaining government debt accumulation, and call for a degree of caution when promoting fiscal decentralization.
Functional decentralization is aimed at increasing the efficiency, effectiveness and quality of public services, among other advantages, by simplifying the organizational structure and by achieving greater proximity to the end user. Nonetheless, the creation of these entities has been criticized because of the potential to make political use of them to avoid the debt limits imposed on sub-national administrations, as debt would then be transferred to the accounting statements of these agencies. The empirical evidence found in the current study shows that the use of these companies as a mechanism for obtaining external financing is determined by the accounting regulations applicable in relation to the consolidation of accounts. Decentralization processes oriented toward increasing debt are more common among left-wing local governments and are strongly linked to fiscal pressure. Points for practitioners Our results show that foundations are now displacing public companies in decentralization processes in order to obtain external funds, since these agencies are not included in the consolidated accounts. Thus, more rigorous regulation should be established in Spain. This opportunistic use of decentralized agencies is developed on the whole by left-leaning political ideologies as a means of incurring more debt that they need. Thus, it is necessary that external auditing offices ( CĂĄmaras de Cuentas) reinforce the monitoring process over local governments in order to circumvent their managerial discretion.
The purpose of this article is to compare systems of fiscal decentralization in EU member states according to selected quantitative criteria. The results indicate that a higher number of lower levels of government usually indicate a greater share of local finance; however, this finding does not confirm the inverse link. Although the structure of expenditures is similar, the shares of funds for the implementation of individual tasks differ significantly. On average, the countries allocate most funds to education, social security, healthcare, and administration, with only a quarter of the countries recording the same or higher amounts of revenues than expenditures. Most countries still cover the existing deficit through transfers from the central government, equalization schemes, or borrowed funds.
The purpose of an article is to compare systems of fiscal decentralization in EU member states according to selected quantitative criteria and European Charter of Local Self-Government principles. The results show that a higher number of lower levels of government usually indicate a greater share of local finance within the total public finance, however, this finding does not confirm the inverse link. Even though the structure of expenditures in EU countries is similar, the shares of funds for the implementation of individual tasks differ significantly. On average, the countries allocate most funds to education, social security, healthcare, administration and political systems, with only a quarter of the countries recording the same or higher amounts of revenues than expenditures. Most of the countries still cover the existing deficit either through transfers from the central to lower levels of government or through equalization schemes or borrowing, which otherwise represents a departure from one of the basic principles of the Charter, which stipulates that financial resources must be commensurate with the responsibilities of local self-government.