Abstract Taxation justice and fiscal federalism are foundational pillars for building an inclusive, democratic, and sustainable nation. As countries diversify economically and socially, the role of equitable taxation becomes central to financing public goods, reducing inequality, and strengthening socio-political cohesion. Fiscal federalism, which concerns the distribution of financial powers and resources across central, state, and local governments, further reinforces the principles of subsidiarity, autonomy, and accountability required in a modern democratic state. This research paper analyses how taxation justice and fiscal federalism contribute to nation-building, examines structural gaps in existing fiscal arrangements, and highlights the need for transparent resource allocation, participatory governance, and decentralized fiscal empowerment. Using qualitative secondary data and descriptive analysis, the study demonstrates that taxation systems that are equitable, efficient, and progressive combined with a well-designed fiscal federalism framework help strengthen democratic participation, reduce regional disparities, support sustainable development, and stabilize public finance. The paper concludes by offering policy recommendations to enhance the equity and efficiency of taxation systems, thereby improving fiscal governance and promoting inclusive nation-building.
ABSTRACT The pursuit of enhanced inclusive growth, a cornerstone of the Sustainable Development Goals (SDGs), has generated extensive scholarly discourse, particularly regarding its interplay with fiscal decentralization in Africa. This study evaluates fiscal decentralization's impact on inclusive growth across 26 African nations (2002–2019) using fixed effects, Driscoll–Kraay, and generalized least squares (GLS) estimators, with robustness checks via Lewbel 2SLS, system‐GMM, and Kinky least squares. Three key findings emerge: first, fiscal decentralization consistently and significantly undermines inclusive growth across all specifications and metrics. Second, a U‐shaped relationship mirrors the Kuznets curve hypothesis, where initial decentralization exacerbates inequality before yielding equitable gains at higher income thresholds. Third, governance quality encompassing corruption control, regulatory efficacy, and political stability moderates this relationship, underscoring institutional frameworks' pivotal role. To mitigate disparities, policymakers must empower local authorities with greater fiscal responsibility over revenue collection and expenditure allocation, ensuring transparency and accountability. Concurrently, reforms should strengthen tax systems, optimize public spending, and enhance redistribution mechanisms, aligning decentralization strategies with broader objectives of welfare enhancement and sustainable growth. Related Articles Asongu, Simplice, and Nicholas M. Odhiambo. 2023. “The Effect of Inequality on Poverty and Severity of Poverty in sub‐Saharan Africa: The Role of Financial Development Institutions.” Politics & Policy 51(5): 898‐918. https://doi.org/10.1111/polp.12558 . Nchofoung, Tii, Simplice Asongu, Vanessa Tchamyou, and Ofeh Edoh. 2022. “Gender, Political Inclusion, and Democracy in Africa: Some Empirical Evidence.” Politics & Policy 51(1): 137–55. https://doi.org/10.1111/polp.12505 . Asongu, Simplice A., Joseph Nnanna, and Vanessa S. Tchamyou. 2021. “Finance, Institutions, and Private Investment in Africa.” Politics & Policy 49(2): 309–51. https://doi.org/10.1111/polp.12395 .
Neither fiscal federalism nor austerity theory adequately explain shifts in US local government expenditure after the Great Recession. We assess spatial differences in local government expenditure composition using finance data for all local governments in the USA from 2007 to 2017. Overall, there was considerable stability in local expenditure patterns, despite pressures generated by the Great Recession. State decentralization, state aid, politics, local capacity, and need all affect local expenditure patterns. Panel regressions of education, social, and allocational expenditures show decentralization is associated with more redistributive expenditure at the local level—not less, as fiscal federalism and austerity theory claim. However, decentralization of educational expenditure is associated with less local educational expenditure. State aid, by contrast, has a complementary effect on local education expenditure. Education spending dropped and then recovered, but state educational aid was found to privilege suburbs. Social expenditure grew during the Great Recession as most cities and counties maintained social welfare expenditures even in the face of fiscal constraints. Overall state aid for social welfare relieved local social expenditure, but it had a complementary effect on social welfare spending in states with historically high social welfare commitments (NY, CA, the Midwest). Localities in the Midwest faced greater fiscal stress, as state aid for social welfare plummeted in these states during the Great Recession. Despite the austerity faced by Midwestern counties, they maintained redistributive expenditure levels. US local governments are not austerity machines. They practice pragmatic municipalism—meeting needs despite limited fiscal resources.
Responses to surveys eliciting evaluations of trust in government, both generally and in specific areas, have varied over time and across countries.Using consistent survey data for 34 OECD countries from 2007-2023, we estimate a model of factors determining levels of trust.We employ a series of econometric techniques of increasing sophistication.The level and growth rate of real income per capita, social spending per capita, the degree of decentralization, and economic freedom all exert positive effects on trust.Inflation, unemployment, and debt per capita negatively affect trust.Additionally, higher levels of human capital and the elderly share of the population negatively affect trust.In the context of trust in government, the estimates suggest a heavier weight on inflation than on unemployment when compared to Okun's misery index, which weights them equally.Additionally, the estimates are used to evaluate combinations of policies, e.g.debt-financed increases in social spending that affect inflation and/or unemployment, to determine the net effect on trust in government.
This paper examines the concepts of federalism, fiscal federalism, and fiscal decentralization, with a focus on the Indian context. It outlines the constitutional and institutional foundations of India’s federal structure, tracing the historical evolution of fiscal decentralization from the colonial period to the post-independence era including pre- reform era. The study analyses revenue-sharing mechanisms, taxation policies, and grants-in-aid, alongside the roles of key institutions such as the Finance Commission, GST Council, and NITI Aayog. Findings highlight persistent vertical and horizontal imbalances, the positive impact of GST on state fiscal autonomy, and the continuing need for equitable and efficient fiscal arrangements. The paper concludes with policy recommendations aimed at strengthening cooperative federalism, enhancing state-level fiscal flexibility, and improving transparency in intergovernmental transfers.
The purpose of this article is to study the peculiarities of the functioning of Ukraine's public finance system under martial law, identify key challenges associated with high levels of economic and social uncertainty, and justify possible ways of adapting budgetary and financial policy to ensure the sustainability, balance, and efficiency of public resource management. The article analyzes the current state of public finances in Ukraine under martial law, describes the main trends in the formation of revenues and expenditures of the state budget, the impact of military actions on the tax system, interbudgetary relations, and financial decentralization. It identifies the main challenges facing the state's financial system, including a sharp increase in military and social spending, a reduction in budget revenues due to a decline in economic activity, a growing budget deficit, and the need for external financing. Particular attention is paid to the role of international financial assistance in maintaining macroeconomic stability, ensuring the solvency of the state, and financing critically important sectors of the economy. The problems of effective public finance management during wartime are highlighted, in particular the issues of transparency of budgetary processes, targeted use of funds, risks of corruption, and restrictions in the area of financial control. Directions for improving public finance management mechanisms in conditions of uncertainty are substantiated, including the digitization of financial processes, strengthening anti-crisis planning, optimizing budget expenditures, improving the effectiveness of financial control, and developing strategic forecasting. Recommendations are proposed to improve the country's financial stability in the medium and long term, which include aligning domestic financial capabilities with external support, improving the efficiency of budget resource use, developing effective public debt management mechanisms, and enhancing financial security as a component of national stability.
Whether fiscal transfers can simultaneously achieve the dual goals of equity and growth has been a key topic of public finance research. This paper examines China's fiscal decentralization system and its intergovernmental transfer practices, proposing two conditions under which equity-oriented transfer systems may promote economic growth: The effectively motivate local officials' enthusiasm for economic development and the receiving regions' high marginal capital returns. We employ unique fiscal data from China's county-level economies for the period 2016–2021 to conduct regression analyses. The results show that provinces with more equitable distribution of transfer payments exhibit better economic growth at the county level. However, at the provincial level, there is a non-significant but noteworthy economic loss. This is attributed to the reverse incentives created by the equalization of fiscal transfers, which encourage growth in smaller counties but hinder growth in larger ones. The main mechanisms driving these reverse incentives include insufficient growth potential, distorted fiscal spending preferences, and an over-reliance on transfer payments. Our study demonstrates that, even within China's unique fiscal system and local development incentives, the allocation of fiscal transfer funds still faces a trade-off between equity and growth. This deepens our understanding of the effectiveness of fiscal transfer systems and the logic of local fiscal operations under a multi-level fiscal governance framework.
Type of the article: Research ArticleAbstractThis paper investigates the determinants of local public investment in Morocco, a country undergoing decentralization and facing persistent regional disparities. The study aims to identify the key factors driving capital expenditure across Morocco’s 12 regions and their local governments, including regional, provincial, and municipal councils, from 2017 to 2024. A dynamic panel of 96 observations is constructed, and a generalized method of moments (GMM) estimator is applied to address endogeneity, control for regional fixed effects, and account for the temporal persistence of investment. The choice of GMM is supported by prior descriptive analysis and the absence of spatial autocorrelation, confirmed by Moran’s I test. The results show that financial resources play a central role in shaping regional investment levels. Specifically, both own-source revenues and central government transfers have a positive and statistically significant effect on investment, with elasticities of 0.43 and 1.35, respectively. Public debt also contributes positively (0.21%), suggesting its potential as a complementary financing tool. In contrast, personnel expenditure exerts a crowding-out effect (−0.48%), reducing the fiscal space available for investment. Other operating expenditures and regional population show no significant impact. The model is robust (R² = 0.757) and satisfies the Hansen test (p = 0.095). Overall, the findings highlight the decisive role of financial autonomy and the effectiveness of intergovernmental transfers in enhancing the investment capacity of local governments. The results also call for better management of operating expenses to avoid limiting capital investment potential.
This study explores the financing of local governance in Nepal, focusing on Neelakantha Municipality to evaluate fiscal federalism under the country’s three-tier governance system. Analyzing revenue and expenditure data from FY 2077/78 to 2079/80, the research reveals a significant dependence on intergovernmental transfers, which comprised over 55% of total revenue, while internal revenue generation declined to as low as 2.8%. Despite consistent budget surpluses, the municipality struggled with capital expenditure execution, achieving as little as 61% in some years. Using indicators such as the Fiscal Autonomy Ratio (FAR), Local Fiscal Dependency Ratio (LFDR), and Financial Autonomy Index (FAI), the study identifies weak fiscal autonomy and increasing external dependence, with FAR values ranging from 4.0% to 38.5%, FAI declining to 18.0% by FY 2079/80, and LFDR trending upward. These trends reflect administrative inefficiencies in revenue collection and budget implementation. Although Nepal’s legal provisions for fiscal federalism are robust, the study concludes that implementation gaps—such as vertical and horizontal fiscal imbalances, overlapping tax structures, and limited local capacity—continue to undermine effectiveness. It recommends enhancing local revenue administration, improving expenditure management, and strengthening performance monitoring. The case of Neelakantha Municipality underscores the need for governance reforms to support institutional design and realize the goals of meaningful fiscal decentralization.
This study applied the Spatial Durbin model (SDM) to examine the regional impact of fiscal federalism on green financing and environmental quality in China between 2000 and 2020. Using principal component analysis (PCA) in STATA, the environmental quality index and green financing (GF) model were created. The fully modified ordinary least squares (FMOLS) and dynamic panel ordinary least squares (DOLS) approaches were used to assess the baseline model’s robustness. The findings indicate that there is a beneficial and noteworthy impact on environmental quality from the decentralization of fiscal expenditure and GF. Moreover GF is positively and significantly correlated with green technological innovation (GTI) and fiscal decentralization (FD), both of which are identified as GF accelerators. The association between the environment and the interaction impact of GF and green technology (GT) is favorable and noteworthy. Based on this study, the Chinese Government should expedite the decentralization process to improve GF and, eventually, environmental quality. Fiscal expenditure decentralization (F.DE) and GT play a significant role in promoting environmentally friendly technologies, optimal energy use, and innovations in the effort to create the least polluting economy.
Alma Idah, R. Biroum Bernardianto, Suffianor Suffianor
This study offers a thorough summary of the state of research in the area of local government finance by conducting a systematic literature review. Drawing on 25 years of pertinent publications in the subject of public budgeting and finance, the study addresses a variety of topics, such as capital budgeting, budgeting and budget reform, intergovernmental finance, financial management, and alternative service delivery. Scopus was used to gather the data, and 580 articles were deemed suitable for additional examination. The data were analyzed using Bibliometric approach. The analysis highlights China, the United States, and the United Kingdom as dominant contributors, with a strong focus on topics such as fiscal decentralization, local government finance, and governance efficiency. The author collaboration network reveals fragmented clusters, with limited interconnections among researchers, emphasizing the need for broader global and interdisciplinary collaborations. Additionally, the findings underscore the growing importance of emerging themes such as sustainability, digital governance, and AI-driven fiscal management, which remain underexplored. Geographical imbalances in research output further highlight the need for greater representation from underrepresented regions, including Africa, South America, and parts of Asia. Policymakers and practitioners who want to keep up with the most recent advancements and industry best practices in local government finance will also benefit from it.
To promote the modernization of state governance system and governance capacity through the reform of fiscal and taxation systems, we must innovate the basic theory of public finance. Fiscal sociology originated from the reflection on the technicalization of public finance and was once regarded as public finance. Embodying the requirement of a return to classical public finance and interdisciplinary research, it demands a combination of grand theoretical framework and grand historical narration. At its core idea, fiscal issues are identified as the root of various social, economic and political issues. Upon analyzing the theoretical tradition of financial sociology and discerning three key issues related to its development, this chapter divides the innovative framework for basic theories of public finance based on fiscal sociology into ten aspects, encompassing methodology, human nature theory, discipline theory, governance theory, revenue and expenditure theory, decentralization theory, development theory, change theory, budget theory, and rule theory. Within this framework, we can integrate existing theories of public finance, so as to gain insight into the relationship between public finance and state governance.
This paper investigates the effect of fiscal decentralization on public finance performance for two levels of government on a panel of 33 developing economies from 2000 to 2020. Using the bias-corrected Least Square Dummy Variable estimator (LSDVC), we demonstrate that fiscal decentralization could enhance fiscal performance. The main findings are as follows: First, a larger share of decentralized expenditure is associated with a stronger central fiscal balance, but this effect diminishes with increased vertical fiscal imbalances (transfer dependency of subnational governments). The findings also show that vertical fiscal imbalances and revenue decentralization undermine fiscal positions at the central government level. At the sub-national level, we find a U-shaped relation between revenue autonomy (measured as the sub-national governments’ share of tax revenues) and sub-national budget deficits. Nonetheless, deficits of sub-national governments can be avoided through increased local accountability, for example, by having regional governments’ executive and legislative officials locally elected.
This article examines the critical issue of ensuring the financial stability of Ukraine’s public finance system amid wartime challenges and national post-war recovery. The study aims to analyze key threats and vulnerabilities – such as the rapid rise in debt burden, sharp decline in budget revenues, and escalating needs for defense and social expenditures – and to propose conceptual, strategic approaches to developing a sustainable and effective state financial policy. The research argues for the importance of balancing various budget financing sources, strengthening the domestic government debt market, and enhancing transparency and institutional capacity within public finance management. In wartime and post-war contexts, financial stability must be viewed as a multidimensional concept, encompassing economic, institutional, and socio-political dimensions. Its achievement demands a combination of anti-crisis measures and a long-term, recovery-oriented modernization strategy. Based on the analysis, the article substantiates the need to revisit intergovernmental fiscal relations, develop instruments to reinforce public trust in institutions, and create financial tools capable of supporting sustainable post-war reconstruction. The findings underscore several unresolved challenges: the optimal mix between debt and internal revenues, the role of fiscal decentralization and local government autonomy, the effectiveness of tax administration, and combating corruption through enhanced oversight and civic engagement. The article highlights the strategic shift in budgetary priorities toward defense, recovery, and longterm development, and emphasizes the dual role of public finance – as both a crisis buffer and a catalyst for modernization, particularly through public–private partnerships and specialized recovery funds. The institutional dimension is decisive: robust mechanisms of control, risk management systems, digitalization of budget processes, and independent fiscal institutions are prerequisites for financial stability. The ability of Ukraine’s public finance system to maintain stability under extreme uncertainty depends on its resilience, multifaceted adaptability, and legitimacy. By diversifying revenue sources, reinforcing institutional frameworks, and guiding spending toward strategic recovery, public finance can become the foundation of long-term sustainable growth and societal trust.
Local self-governments, as a form of exercising and realizing citizens' authority, have access to certain material resources that serve the purpose of performing their original and constitutionally guaranteed functions. As decentralized levels of state power, local self-governments regulate and execute legally assigned tasks in the interest of their citizens, for which they require appropriate financial resources. The methods of financing local self-governments in the Republic of Serbia are regulated by legislation and guaranteed by the Constitution. There are several methods for financing local self-governments, i.e., for securing funds for municipalities, cities, and the City of Belgrade. This paper focuses on various methods of financing local self-governments, with particular attention to non-earmarked transfers from the national budget of the Republic of Serbia. The aim of the paper is to highlight the importance of national budget financing of local self-governments, as well as the need for its reform.
Government budgeting and expenditure policies play a central role in shaping national economic trajectories, influencing fiscal sustainability, and determining the quality of public services. This article provides a comprehensive review of the multifaceted effects of public budgeting, addressing key issues such as the impact of government spending on economic growth, the dynamics of budget deficits and public debt sustainability, and the roles of fiscal rules, gender budgeting, and political cycles. Additional attention is given to the effectiveness of performance-based budgeting, the challenges of balancing budgets in welfare states, and the implications of military spending, budget transparency, and participatory budgeting on governance and public trust. Further discussions analyze how fiscal decentralization, off-budget expenditures, and differing budgeting frameworks between federal and unitary states affect long-term economic stability and public finance. By synthesizing empirical and theoretical insights, this article offers policy recommendations to enhance fiscal discipline, encourage citizen engagement, and promote sustainable economic growth.
This paper examines the public finance management (PFM) systems of Türkiye and the United States, highlighting their contrasting approaches to fiscal governance. Türkiye employs a centralized system influenced by European Union frameworks, with a strong emphasis on fiscal discipline and medium-term planning. In contrast, the United States operates a decentralized model, characterized by transparency, citizen engagement, and state-level autonomy. The study explores key metrics, including debt-to-GDP ratios, fiscal transparency rankings, and tax collection efficiency. While Türkiye’s system excels in strategic planning, it faces challenges in decentralization and public participation. Conversely, the U.S. boasts robust transparency mechanisms but struggles with growing national debt and fiscal disparities among states. By analyzing these systems, the paper identifies areas for mutual learning, recommending a balanced integration of transparency, participation, and strategic planning to enhance public finance governance in both nations.
Indonesia’s fiscal decentralization framework has evolved substantially since the 1998 Reformasi era; however, its capacity to ensure equitable and sustainable development remains debatable. This study analyzes the intricate dynamics of fiscal decentralization within Indonesia’s development financi
This paper critically examines Pakistan’s fiscal federalism and highlights the challenges posed by the 18th Constitutional Amendment 2010. The research is contextualized within the broader theoretical framework of fiscal federalism. Although intended to decentralize power and grant fiscal autonomy to provinces, the amendment has created structural fiscal issues, especially within the National Finance Commission. Locking of the provincial NFC share, lack of consensus building on the NFC Award since 2009, stagnant fiscal space and tax-to-GDP ratio, vertical fiscal imbalance, and absence of a joint fiscal responsibility mechanism have a negative bearing on the macroeconomic stability of Pakistan. Limited fiscal decentralization to local governments further restricts equitable development at the grassroots level. Key recommendations include operationalizing the NFC Secretariat, revising fiscal frameworks, incentivizing provincial tax efforts, and enhancing collaboration through the Council of Common Interest to strengthen fiscal management and cohesion.
Abstract This chapter highlights the basic tenets of fiscal federalism, making a distinction between the traditional focus on the link between decentralization and welfare to its more modern-day extensions. The idea of fiscal federalism is couched in the belief that multi-level governments can augment the pursuit of efficiency and equity in the provision of public and merit goods through cooperation, competition, and coordination among central and sub-national governments. India’s constitution provides for an independent body, namely the Finance Commission, for this purpose. The constitutional arrangements imply an asymmetry in the assignment of resources and responsibilities between the central and the sub-national governments. This has resulted in the centre having a larger share of resources, and the states having larger responsibilities. The system is brought in balance by a suitable scheme of transfers from the centre to the states. The challenge is to design a scheme of fiscal transfers that provides the right incentives and facilitates comparable standards of public and merit services throughout the country. In this chapter, the modern extensions of the idea of fiscal federalism are also extensively discussed. These deal mainly with five aspects, viz. fiscal competition among jurisdictions, political economy aspects of fiscal federalism, market-preserving fiscal federalism, environmental federalism, and fiscal decentralization and growth. These are all aspects of federalism that have a bearing on the evolution of fiscal federalism in India and are often reflected in the changing terms of reference of the Finance Commissions.
This paper explores the current state and formation mechanisms of local government debt risk in China. With the slowdown in economic growth and the reduction in land finance revenue, the scale of local government debt has expanded, and debt risks have emerged. This paper analyzes the impact of fiscal systems, regional competition, and promotion incentives on debt risk, finding that mismatched fiscal powers and responsibilities, increased fiscal decentralization, tax competition, and promotion pressures have driven debt expansion. To address these issues, the paper proposes three policy recommendations: central fiscal support to promote economic recovery, optimization of the debt structure to enhance transparency, and strict control of new debt with performance assessments. This research provides theoretical support for understanding the formation mechanisms of local government debt risk and offers references for policy formulation.
This chapter presents an account of the sources of local finance in the American political system. ‘Local’ refers to local governments, but principally municipalities, rather than school districts, townships or other special districts. Altogether there are over 80,000 units of local government in the United States. The purpose of this review is to contrast the situation in Britain with that of the United States against the capacity of local authorities to raise and control their finances. The central argument is that the differences between the two countries in this regard hinge critically upon the degree of local autonomy found in each political system. Local autonomy is fundamentally a political issue deriving from the nature of central-local relations in each country and the political assumptions informing these respective relationships influenced by the political culture. The United States is a federal polity imbued throughout with the culture of decentralization and local autonomy: local governments remain creatures of their regional states (see below), though they exercise some autonomy within those constraints. By contrast, British local authorities are tightly constrained by Parliamentary legislation as to what they can and cannot do. But there is an important tradition of local authorities determining their own revenue needs and allocation of their funds in Britain: it is this tradition which has been eroded since the 1970s by the central government, manifested most forcibly in the realm of central-local financial relations. This erosion of local autonomy is a political process motivated and shaped by political interests and concerns. Economic, and other, rationales may well be produced for particular arrangements but these must be analysed in their political context.
This paper investigates the distribution of public school expenditures across U.S. school districts using a bayesian maximum entropy model. Covering the period 2000-2016, I explore how inter-jurisdictional competition and household choice influence spending patterns within the public education sector, providing a novel empirical treatment of the Tiebout hypothesis within a statistical equilibrium framework. The analysis reveals that these expenditures are characterized by sharply peaked and positively skewed distributions, suggesting significant socioeconomic stratification. Employing Bayesian inference and Markov Chain Monte Carlo (MCMC) sampling, I fit these patterns into a statistical equilibrium model to elucidate the roles of competition, as well as household mobility and arbitrage in shaping the distribution of educational spending. The analysis reveals how the scale parameters associated with competition and household choice critically shape the equilibrium outcomes. The model and analysis offer a statistical basis for shaping policy measures intended to affect distributional outcomes in scenarios characterized by the decentralized provision of local public goods.