By using the panel data of house price and the economic fundamentals of 35 cities in China from 1999 to 2008,the paper studies the interactions between house price,fiscal decentralization and local government competition.The empirical analysis shows that fiscal decentralization and local government competition have significantly positive influence on house price,and the influence of fiscal decentralization is different between regions.To realize rational house price growth,financial management system of the local government should be sound,the land finance should be regulated,the proportion of the local government fiscal revenue should be increased and the assessing system of the local government official achievements should be established.
Žan Jan Oplotnik, Boštjan Brezovnik, Borut Vojinović
This research paper focuses on the compliance of the actual system of financing local selfgovernment in Slovenia with the basic principles of the theory of decentralization and guidelines of the European Charter of Local Self-Government. It addresses the level of costs coverage within the municipal competence by using the allocated appropriate expenditure resources calculated according to the Law of Financing Municipality Act. The purpose of the paper is, therefore, to look for an answer to the question whether and to what extent the obtained funds correspond to the actual workload that municipalities have for performing statutory tasks and for exercising their competences. Analysis shows that, on an aggregate level, these actual systems ensure enough resources for local governments to cover their actual costs and current expenditures; some groups of municipalities, e.g. larger urban municipalities, municipalities with large proportions of elderly people etc. are faced with lack of funding, according to the actual costs data available, while other groups of municipalities receive more funds than they need.
A “good” tax system for developing countries was once considered one based on progressive income taxes. More recently, the emphasis has been placed on securing revenues from broader bases at lower rates from consumption as well as income taxes. A framework for evaluating public finance structures and institutions in terms of revenue and spending as well as the fiscal balance is set out, and some key areas such as VAT, earmarking, tax evasion, and administration, and non-tax revenues are discussed. Increased globalization challenges national tax bases and makes it even more important to improve local fiscal expertise and institutions in developing countries. Finally, if local governments are sufficiently reliant on own revenue to promote fiscal discipline, decentralization may produce gains in both efficiency and local accountability that may outweigh any costs that might arise from the loss of some macroeconomic control and altered investment priorities.
Pablo Simón, Santiago Lago Peñas, Alberto Vaquero García
This paper studies the effect of political variables on the gains obtained by Spanish regions in periodical bargaining of the intergovernmental financing agreements and on the regional distribution of discretional earmarked grants over the period 1987-2008. First, we find that the relationship between gains in transferred revenues and on regional public debt stocks depends on the period and the specific issues discussed in the corresponding negotiation, aside from political affinity. Second, we show that the most discretional program of earmarked grants is strongly driven by electoral strategy. National incumbents tend to allocate intergovernmental transfers where there are competitive regional elections. Moreover, we show that earmarked grants are allocated in those regions where the incumbent performs better in national elections and, especially, in those where there are more seats to be won. Hence we prove that both strategies are complementary rather than exclusive.
This paper is about the case for assigning taxing powers to subnational governments, and about the structure of this revenue assignment. As Musgrave (1983) put it in perhaps the seminal paper on this subject, “Who Should Tax, Where and What”? This review reconsiders the Musgrave questions after 25 years, asks whether the international trend in tax assignment is in step with what economists have prescribed, and concludes with some thoughts about the most likely future for the decentralization of tax systems.
In this article, we compare and contrast the design and performance of China and India’s intergovernmental fiscal systems. We find that there are remarkable similarities in the design and performance of China and India’s intergovernmental fiscal systems. More specifically, both countries have highly decentralized expenditures assignments and highly centralized revenue assignments. As a result, sub-national governments in both countries must rely on fiscal transfers to finance their assigned functions. Finally, there is considerable off the books and hidden borrowing by sub-national governments in both countries. We also find that there are considerable and growing disparities in the rate of expenditure decentralization among sub-national governments within each country. Lack fiscal discipline and growing fiscal disparities among sub-national governments create risks to future economic growth and to social cohesion, absent policy reforms to address these issues.
Three Essays on Local Public Finanace Lenka Šťastná Abstract The dissertation studies spending decisions of local governments. It consists of three parts; theoretical model is developed in the first part and empirical analyses of Czech municipalities of extended scope are presented in the other two parts. The theoretical model analyzes whether it is beneficial to decentralize policy decision-making when local public goods in two symmetric regions are complements. Strategic delegation when a voter intentionally votes for a politician whose preferences do not coincide with those of the voter and in-kind transfers, used to support local public goods production in the other region, are allowed. According to Oates' decentralization theorem, centralization pareto-dominates decentralization for symmetric regions regardless level of spillovers. However, for complementary public goods and when strategic delegation and in-kind transfers are considered, the tradeoff may be exactly opposite and decentralization may pareto-dominate centralization. The second part aims to test fiscal interaction among local governments in the Czech Republic which can be driven by spillover effects, competition, mimicking, or cooperation. Spatial dependence of local public spending (i.e. whether spending decisions in neighboring...
To meet the increasing scholarly interest in China, this symposium provides a forum for scholars in public budgeting and finance to exchange research on China-related issues. There have been new initiatives to reform China's public fiscal system in the past two decades. The papers in this symposium examine advances and associated issues in fiscal decentralization, local budgeting, and urban infrastructure financing. The papers not only analyze the existing issues, but also make recommendations on how to develop an accountable local budgeting system, how to finance sustainable urban infrastructure, and how to pursue a more balanced approach to fiscal decentralization in contemporary China.
In many countries the decentralization of spending responsibilities has outpaced the decentralization of revenue powers. Sub-national governments have then to rely on transfers from the center and borrowing to finance their spending. When this occurs, we find that the overall fiscal deficit tends to increase. This result is based on cross-country econometric evidence from OECD countries, and is particularly strong in the presence of regional disparities. Fiscal discipline can be strengthened by ensuring that sub-national taxing powers are adequate to meet spending obligations.
The conversations about fiscal federalism, decentralization and devolution have been evolving in the literature since the second half of the 20th century. In the United States and all around the world, the matter of governance and decentralization are on the agenda. This paper aims to find the routes of fiscal federalism by first understanding what is meant by federalism, as it does not simply refer to a form of governance, then laying out the classical foundations of this theory (trumped by Wallace Oates), and followed by some departures from the classical thoughts into some new streams of literature on the matter.
Key words: Public finance, fiscal federalism.
We hereby propose a model to analyze the provision of environmental protection activities (United Nation 2005) with positive interregional externalities in order to verify - at least in theory - whether this kind of policy is better accomplished through centralized policymaking, which implies a coordinated solution among local representatives, or a decentralized system, whereby local authorities independently finance and implement their environmental protection policy. The research question concerns the identification of criteria on how to allocate powers and functions to environmental management at different tiers of government. Moreover, modelling interregional externalities as a mechanism contributing to lowering the cost of financing environmental policy in each region (production externality), we can assume that different environmental policies are allowed across regions. Given this general framework, considerations favouring either institutional setting in terms of individuals’ welfare seem to involve interaction among these key elements: the extent of the inter-jurisdictional spillovers, the size of local jurisdictions and the regional preferences for environmental protection policy.
Conventional wisdom postulates that there are benefits from decentralizing government finances but there is little empirical evidence about actual country practices. This paper presents data on fiscal decentralization for about 80 countries over a period of about 20 years (1990-2008) from the IMF’s Government Finance Statistics Yearbook (GFSY), the only global database with fiscal data for several levels of government. The data show that in many countries, revenue collection remains relatively more centralized than expenditures and that employment tends to be concentrated in lower levels of government. Except for transition economies, the levels of decentralization are relatively stable over the time period. The findings are shown by degree of economic development, constitutional power arrangements, and geographic area, broadly confirming key factors identified in the literature as determining the extent of fiscal decentralization.
ABSTRACT
This study aims to determine how important the public sector, through their spending, influences the growth rates of GDP (Gross Domestic Product) in the municipalities of Rio de Janeiro. Studies in this line are justified by the growth of the powers of sub-national levels of government, or fiscal decentralization. The base case relates to the decentralization more efficient provision of public goods, a fact allowed by the proximity between demand and supply of public goods. The results suggest that the public sector does not interfere with GDP growth in the cities of Rio de Janeiro. The investments were the largest category with its own momentum of economic growth and a model that included the occurrence of elections as an explanatory variable showed that election lawsuits not only affect the level of GDP, but also how it is affected by public spending.
Key words
Public Finance; development; cities.
Classificacao JEL: O23.
Artigo recebido em out. 2009 e aceito para publicacao em dez. 2010.
Failure is the norm for urban sanitation infrastructure in Ghana: of the rather substantial number of wastewater and faecal sludge treatment plants, with about 70 mostly decentralized systems throughout the country, less than 10 are operating effectively. This research presents an overview of the related sanitation situation in Ghana, and compares the few successful facilities with their failed counterparts in order to decipher the factors that enable the former to prevail. The research reveals important differences in the operation and maintenance (O&M) strategies, financing schemes and incentive structures in the successful versus unsuccessful facilities, which are probably not unique to Ghana. Based on the findings, we suggest a set of guiding questions for incorporation into the existing planning, funding or general decision-making framework in order to avoid commonly observed traps, which not only undermine progress in the delivery of sanitation services but also harshly affect environmental and public health.
Various trends, including an increasing emphasis on fiscal decentralization; political democratization in many areas; globalization and the financial liberalization that often accompanies it; growing demands for urban services as urbanization continues in major cities around the world; all argue compellingly for finding ways to help municipalities finance large scale infrastructure. Improved urban infrastructure, for water supply, sanitation, urban transportation and solid waste management is widely believed essential in encouraging and facilitating economic growth. Evidence indicates that those countries most successful in sustaining high growth supported their cities with transformative investments to improve urban infrastructure that could accommodate rapid population growth in major economic centers. This evidence suggests that infrastructure has a strong “supplyside†orientation and in practice, it is the effects of infrastructure on “supply†that are most often emphasized. There is also a strong “demand-side†aspect: individuals and businesses value the services that flow from the stock of infrastructure facilities and these demands should be (but are often not) considered in determining the appropriate level of infrastructure investment. In addition to the potential supply-and-demand-side impacts on economic growth, the services of infrastructure also play a significant role in the distribution of income.[Working paper No. 19]
This publication discusses the decentralization issues faced by countries of Asia and the Pacific. It includes practical suggestions on how to proceed in this area to achieve economic growth, macroeconomic stability, poverty and income distribution, services delivery improvements, and political accountability. This note elaborates on adequacy of local revenues and autonomy, expenditure management and clear service delivery mandates, horizontal imbalances and limited use of incentives in intergovernmental transfers, financing needs and local government borrowing, and local management capacities as the major challenges in a decentralized fiscal architecture. The recommendations to address the above challenges also note the long- term nature of these reforms.
Decentralization will increase economic efficiency because local government are better positioned than the national government to deliver public services as a result of information advantages (Oates' Decentralization Theorem). Consequently, it was thought that decentralized finance would appear to have a potentially useful role to play in economic development (Oates [1993]). From the empirical viewpoint, however, it remains controversial whether there is any relationship between decentralization and economic growth. For example, as pointed out by Ebel and Yilmaz [2002] and Iimi [2005], it has been argued that fiscal decentralization can serve as a means to promote economic growth. On the other hand, there is some empirical evidence that fiscal decentralization is negatively associated with economic growth (e.g., Davoodi and Zou [1998], Zhang and Zou [1998]). Various reasons can be given for the differences in empirical estimations. In particular, the selection of fiscal decentralization variables is thought to be a cause of differences. A widely accepted measure of fiscal decentralization is the subnational share of total government spending. However, this is an imperfect measure of fiscal decentralization because it does not identify the degree of local expenditure autonomy. Ebel and Yilmaz [2002] defined the degree of local expenditure autonomy as the share of subnational own-revenues in total revenues. Though this indicator might capture subnational autonomy, it is difficult to represent the empowerment of people and communities through fiscal decentralization. However, it is important to be able to define fiscal decentralization as the empowerment of people and the community through fiscal empowerment of their local government. People and the community must be able to direct their subnational government officials to use their financial resources in accordance with local needs and preferences (Bahl [2005]). Boex and Simatupang [2008] develop a measure of fiscal empowerment to quantify fiscal decentralization as the gain in empowerment due to the devolution of fiscal power. However, this study does not examine the relationship between fiscal decentralization and economic growth. This paper sets the stage for a renewed effort to compute alternative measures of decentralization that take into account the degree of subnational autonomy and the empowerment of people and the community, and examines how fiscal decentralization viewed in terms of the empowerment of people and the community can affect economic growth.
Peru represents a laboratory for examining the different approaches to the centralized or decentralized delivery of public services over the past quarter of a century. There is a renewed and increasing interest in decentralization in Peru as a mechanism to generate more involved decision making at the sub-national level. This is tempered with a continuing emphasis on overall fiscal stability. Learning from the lessons of the ongoing decentralization, there is a recognition that considerable work needs to be undertaken to more clearly define expenditure responsibilities and financing mechanisms that would increase local accountability. In addition, improved expenditure management at all levels of government is needed. The paper suggests that there is a pending work agenda to grasp the benefits of the decentralization process, including the reduction in inequality and poverty across regions.
As a conclusion derived from empirical analyses,Wagner's Law has forecasted properly that the amount of government's public expenditure would rise with economic development.However,Wagner's Law has been given a fierce attack theoretically and practically because of the continuous evolution of public administration,especially the beginning and expanding of New Public Management around the world whose main content includes optimization to government's function,government reform of the personnel system,public services reformation,reforms of administrative decentralization and the reform of social security system.However,as an integral part of New Public Management Movement all over the world,fiscal reformation of China is deeply affected by Wagner's Law at present.In order to improve the system of government revenue and expenditure,the transfer payment system,system of centralized collection,public budget system and finance supervise system,it is coming to reflect the applicability to public finance in China of Wagner's Law.
Positive financial policy always goes along with unbalanced economic structure in China.It is easy to follow the simple logic and make the judgment that large-scale public investment construction may aggravate structural imbalance and threaten sustainable economic growth while maintaining rapid economic growth.Based on research of Chinese practice,intrinsic investment impulsion of local authority indeed strengthens the imbalance of economic structure under specific decentralization system of China.But as a policy tool,public investment doesn't have positive connection with the transition of economic structure.However,under the control of finance decentralization and other institutional factors,excessive growth of public investment and economic aggregate has remarkable inhibitory effect on transition of economic structure.Therefore,moderate economic growth and investment increase will benefit the transition of economic structure.
Using provincial panel data for central China during 1985-2008,this paper empirically investigates into the impact of financial development on economic growth by fixed effect model.The study shows the central region's financial development hasn't become the driving factor of economic growth after fiscal decentralization reform.And the main reason for this can be attributed to the intervention of local governments,unreasonable structure and inefficiency of finance etc.
The dissertation examines the political challenges of public utility reform through the analysis of urban water and sanitation services in Mexico. Decentralization of services to municipal governments was coupled with promotion of "market-based" policies in the 1980s and 1990s. However, the unpopularity of these policies provided political obstacles for mayors now charged with reforming the sector because many consumers were not accustomed to paying for water services. These policies--increased water prices, rigorous fee collection practices, and service suspension for non-payment--were political costs felt in the short-term, whereas the benefits of reform were long-term service improvements in water quality and quantity, reduced environmental pollution, and increased economic and social development. This problem of time inconsistency is a challenge even for pro-reform mayors because mayors in Mexico have a narrow window of time within which to enact policy. Mayoral administrations are three years long with no immediate re-election, and bureaucratic administrators follow the electoral cycle, which further exacerbates the challenge of long-term policymaking.Based on a comparative analysis of nine Mexican municipalities, I argue that mayors whose constituent base is primarily composed of middle and upper income consumers and business are more likely to reform because these groups are more able to pay short-term costs for long-term service improvements than the urban poor. With the support of a pro-reform mayor, reform is likely under two conditions: a) the presence of a water intensive industry and b) institutional support from the state government. Water intensive industry prioritizes improvement in service delivery, calculates costs based on the long run, and, further, has long-term financial and professional ties in the community. Water intensive industry is well positioned to support the policy process over time by participating in the leadership of the water utility board of directors. Also, water intensive industry can help offset the costs of reform because it pays more per cubic meter through a block tariff pricing scheme, a policy that subsidizes domestic consumers and helps to finance the reform agenda. Therefore, water intensive industry can lengthen the political problems of imposing costs in the short-term for mayors, lowering the costs to consumers before the long-term benefits of service improvements appear. Finally, state governments can provide legal, fiscal and technical resources that can help shorten the learning curve of incoming mayoral administrations. As such, state government can shorten the long-term planning of the reform process to make it more consistent with the shorter electoral cycle found at the municipal level. This research advances debates on policy adoption and implementation, highlighting the importance of political-business coalitional support as well as the role of inter-tier relations in maintaining policies over time.
This paper studies the impact of access to education in a search and matching model of the labor market representing a developping economy. It then addresses the issue of the impact on the market efficiency of public policies aiming at increasing education. Developing economies are well known for having a large pool of uneducated (low-productive) workers in the informal sector whereas the formal sector captures almost all educated (higher-productive) workers. Access to education may therefore distort the structure of the labor market and thus global output.To address this issue, we consider a segmented labor market with a formal sector and an informal sector. 3 states coexists: unemployment, formal employment and informal employment. Uneducated workers are forced to apply to the informal sector whereas educated workers may apply in both sectors depending on model specifications. The formal sector is subject to market frictions whereas the competitive wage clears the informal labor market. Unemployment thus only exists in the formal sector and acts as a pool of entry to formal employment. Informal employees may possibly search on-the-job for a formal job. This last feature of the model implies that modifying access to education distorts the repartition of workers in the labor market. Two assumptions are made: first, education is increased by external intervention (international subvention to education). Second, education is self-financed by taxes paid by the formal sector (the local government faces a budget constraint). We compare the decentralized equilibrium situation to the social planner equilibrium.Without any foundings consideration, 1) increasing education raises the number of workers applying in the formal sector. In the presence of search frictions in this sector, the probability of obtaining a formal job is reduced as well as formal job wages. 2) The asset values of informal and formal workers are getting closer which discourages informal on-the-job seeker to look for a formal job. The two impacts leads to opposite effect on informality. Further results on efficiency are on the run.