This paper focuses on the fiscal decentralization in the Philippines after the 1991Local Government Code. It first examines the intergovernmental fiscal relationshipbetween central and local governments by using fiscal decentralization indicators,and then investigates its impact on local finance. After fiscal decentralization, thelocal expenditure responsibility is expanded while the local fiscal capacity is notstrengthened in the Philippines. Local governments consequently comes to dependheavily on fiscal transfers from the central government, internal revenue allotments(IRAs), which has a substantial influence on local finance. The heavy dependence onIRAs makes local finance unpredictable and unstable. The distribution of IRAs alsoaffects the horizontal balance between provincial governments.
Every regions government must be able increasing their own regional income. The finance of resources in fiscal decentralization era, such as: regional original income, general allocation funds and natural resources revenue sharing and tax revenue sharing This research aims to analyze the fiscal decentralization impact to economic growth at regional district in sub province Semarang. The tool of analisis is regression using panel data with Generalized Least Square (GLS) method and Fixed Effect model. It uses district-level data and supplied by the Indonesian Central Bureau of Statistics during 2002 - 2006 The regression result shows that regional income, natural resources revenue sharing and tax revenue sharing, and labor forces have positive impact on economic growth at regional district in sub province Semarang. General allocation funds have negative effect towards economic growth at regional district in sub province Semarang. Fiscal decentralization brings more advantages for regions to manage their own fiscal capacities. The regions governments must be have informational advantages concerning resource allocation with optimal Keywords: Fiscal Decentralization, economic growth, Fixed Effect Model
Decentralization has the potential to lower corruption and alleviate poverty across the world. The true effects of this process are unclear since there are relatively few studies on decentralization and many of these studies, both theoretical and empirical, give conflicting results. One major problem in the literature for the effects of decentralization on corruption has been sample selection bias. The main cross-country dataset for decentralization, the IMF's Government Finance Statistics (GFS), has data for only about 40 countries, and most of these are developed. I attempt to mitigate this sample-selection problem by first estimating a Heckman model for decentralization in order to predict values for unobserved countries and then using these predicted values to estimate decentralization's impact on corruption. My results show that decentralization has an insignificant effect on corruption, suggesting that decentralization alone may not be a useful tool for mitigating corruption.
The paper intends to analyse a model of decentralization specific to Continental Europe, which shows that a transferof responsibility to the local authorities has not always been appropriately followed by a transfer of resource, the consequencebeing the appearance of budgetary imbalances at the level of local communities. In this situation, the local communities areforced to identify the funding source and, therefore, they have used the most rapid instruments provided by the law and thefinancial institutions – the borrowed sources. As long as the borrowed funding sources have been used to the restoration of thepublic infrastructure and, therefore, to the public investments, the solutions identified by the public manager are not to beblamed, the problem being the use of borrowed sources in order to cover certain consumerism needs which illegitimatelycharges, in our opinion, the public cost, the obligation to finance the maturity rates including the interest falling back on thefuture generations.
Martin Altemeyer-Bartscher, Dirk Rübbelke, Eytan Sheshinski
International environmental protection like the combat of global warming exhibits properties of public goods. In the international arena, no coercive authority exists that can enforce measures to overcome free‐rider incentives. Therefore decentralized negotiations between individual regions serve as an approach to pursue efficient international environmental protection. We propose a scheme which is based on the ideas of Coasean negotiations and Pigouvian taxes. The negotiating entities offer side‐payments to counterparts in order to influence their taxation of polluting consumption. Side‐payments, in turn, are self‐financed by means of externality‐correcting taxes. As we show, a Pareto‐efficient outcome can be attained.
In most local developing settings, the political leader and the municipal manager are embodied in the same figure, the directly elected mayor. This research explores the impact of mayoral quality on local public finances in a developing country. Mayoral quality is operationalized as educational background and job‐related expertise to analyze its impact on two local financial indicators: property tax collection and social spending per capita. The mayoral quality thesis is tested across 40 Colombian municipalities over five years (2000–2004). After considering other political, economic, and external influences, the findings reveal that mayoral quality is associated with greater property tax collection and more social spending per capita. This positive influence, however, decreases under external constraints—such as presence of illegal armed groups. This study demonstrates how much influence the mayor can have when circumstances permit. The findings point to the significance of electing qualified mayors, as decentralization may not directly improve subnational finance. Instead, through decentralization, qualified mayors contribute to improved local public finance.
The design of any system of transfers is a complex matter, and in practice very few countries are able to get it right, especially at the start of a process of decentralized system of finance. It is quite obvious that South Africa has made great strides in the design of its transfer system, primarily comprised of: an unconditional grant distributed by formula, the “Provincial Equitable Share” (PES); a system of conditional grants; and several other non-conditional transfers. In this report we focus exclusively on the analysis of the existing PES transfer and also on possible options for its reform. Our report consists of three main parts. We first summarize the main features of the PES. We then focus on what may be lacking with the current system. We finish with options for reform.
The paper deals with the equivalence between taxation and emission permits according to different viewpoints: the first one sets prices, the second one quantities. But equivalence is more formal than substantial: taxation is the generating fact, the market of permits does not exist spontaneously. Its price is unstable because supply is not independent from demand. It is manipulatable either ex ante when free allowances are allocated or ex post during the period of compliance through Walrasian tatonnement. A real economic determination of prices exists only when there are unit taxes or penalties on emissions exceeding the quotas. In order to avoid these drawbacks, pay-as-bid auctions must be used and free allowances avoided. Taxation or the price of emission permits are the real option value of changing techniques. An assignment rule is proposed : taxes are assigned to reduce average emissions and permits to reduce marginal emissions. In order to transform the cost into a real change of techniques, it is necessary to finance the sector of research and development of an amount greater than the taxes levied on pollution, which serve at paying the rent of innovation. These extra subsidies are used to move factors of production as capital from industry towards the innovation sector. The tax equivalence is ternary and concerns the taxes on pollution, capital and energy, because extracting fossil fuels is similar as innovation. Decentralization through market schemes induces that depollution has a marketable cost.
Federalism research has recently seen a downright renaissance by putting the question “Does federalism matter?” on centre stage (Kaiser 2004). Findings in this respect are, however, ambiguous so far. Some authors observe a positive influence of federalism on lower inflation rates (Lijphart 1999; Lancaster/Hicks 2000), lower unemployment (Crepaz 1996), or a higher economic growth (Lancaster/Hicks 2000), whereas other researchers do not find any effects of federalism with regard to the macroeconomic performance of political systems (Lane/Ersson 1997; Castles 2000).p1 In addition to disputed findings and a preference for case studies instead of comparative research, there is next to no theoretical argument in these contributions as to why federalism should or should not have consequences for policy output. Against this background, the history of federalism research has a surprise in store. The question of performance effects of federalism refers back to Ostrom (1973) who turns against Riker’s (1969) claim that federalism (apart from more complicated decision-making) makes no real difference. Ostrom’s argument rests explicitly on findings of the public finance literature (in particular Oates 1972) and the assumption that federal countries can fully exploit the advantages of a decentralized provision of public goods and services. It is therefore rather startling that federalism literature has, for the most part, neglected the dimension of economic decentralization, the more so as there appears to be no alternative basis for the purported performance effects of federalism.p2
Decentralization of public responsibilities implies also financial decentralization. The effect of this process in EU countries’ budgets is important to be evaluated in order to correlate with macroeconomic indicators. From financial point of view, local revenues and expenditures and the balance of local budgets constitute the main research theme. Different experiences and realities reached under the same normative framework (European Charter of Local Self-Government) are analyzed in this paper.
This article empirically examines the interaction mechanism between fixed capital formation and government investment in an intertemporal framework,employing data on China and Japan.We found that although China and Japan both implement fiscal decentralization,the respective mechanisms through which economic development and investment are boosted are quite different.While correlation between the growth rate of GDP and capital formation is weak in Japan,its central government investment stimulates the formation of capital.In China,local governments have played an irreplaceable role in the formation of public and fixed capital.The paper makes a comprehensive and comparative study of the fiscal systems in China and Japan in terms of the demand,supply,financing and efficiency of public investment.The better performance of Japan's public investment should be attributed to its effective incentive mechanism,under which local governments are encouraged to invest to build good infrastructure for economic growth.
In this paper the author investigates the effect of regional finance on economic disparity and the effect of fiscal decentralization though using panel data analysis to analyze 28 provinces' statistics from 1990 to 2004. The results show: in the east region and west region the financial development has a positive effect on the regional economic growth. But in the middle region and northeast region the financial development has a negative effect on the regional economic growth. The effects of fiscal decentralization on the financial development and economic growth are different in different regions. Its positive effects are only found in West and Northeast. At the same time the author also thinks over how the factors such financial policies and the degree of denationalization affect the relation of financial development and regional economic growth. At the last there are the conclusions and policy proposes to coordinate regional economic from the aspect of regional finance.
Decentralization reforms in CEE countries have been an essential component of the overall transformation process that took place after the collapse of the former communist regimes. It entered public thought as a panacea to the political, economical and social problems that emerged because of and during the transformation. It also featured prominently in social policy reforms, particularly in the case of social assistance. Local government involvement in the financing and administration of social assistance schemes has been widely promoted by various international organizations as holding the key to reducing the financial cost of such schemes through improved targeting. However, the theory of fiscal federalism provides us with sound theoretical arguments against decentralization of social assistance. According to this theoretical framework, fundamental constraints on redistribution by lower level governments would negatively affect the generosity of poverty relief systems and facilitate a ‘race to the bottom’.
The paper puts forward the theory of fiscal decentralization and the superiority of the basic point of view by illustrating the theoretical development of the financial decentralization of the sort sequence. China's financial system is at a critical stage of reform and development. Between central and local governments into financial terms and the exercise of reasonable design of the system still exist,issues such as lack of incentive mechanism. The West by studying the theory of fiscal decentralization at all levels of government will help improve the financial efficiency and effectiveness of behavior,and promote national economic and social development.
The work paper highlights the evolution of the public financial decentralization in Romania, based on analysis of legislative changes that occurred after 1991.These changes have had an important impact on local budgets and on local government responsibilities. In the context of increasing local financial independence, local authorities had to demonstrate their ability to take on the tasks of local interest from central government powers. The effect is prompt and timely response to citizen needs.
Aleksander Berentsen, Mariana Rojas Breu, Shouyong Shi
Many countries simultaneously suffer from high inflation, low growth and poorly developed financial sectors. In this paper, we integrate a microfounded model of money and finance into a model of endogenous growth to examine the effects of inflation on welfare, growth and the size of the financial sector. A novel feature is that the innovation sector is decentralized. Financial intermediaries arise endogenously to provide liquidity to this sector. Consistent with the data but in contrast to previous work, reducing inflation generates large growth gains. These large gains cannot be easily reproduced by imposing a cash-in-advance constraint in the innovation sector.
Informal payments are a frequently overlooked source of local public finance in developing countries. We use microdata from ten countries to establish stylized facts on the magnitude, form, and distributional implications of this "informal taxation." Informal taxation is widespread, particularly in rural areas, with substantial in-kind labor payments. The wealthy pay more, but pay less in percentage terms, and informal taxes are more regressive than formal taxes. Failing to include informal taxation underestimates household tax burdens and revenue decentralization in developing countries. We propose a simple model of information and enforcement constraints that parsimoniously explains the patterns in the data.
This paper provides an in-depth analysis of the relationship between fiscal decentralization and pro-poor outcomes based on the role of fiscal incentives. The literature on the relationship between fiscal decentralization and pro-poor outcomes is not well established in this area. A conceptual model is developed to explore in more detail this relationship, while endeavoring to illuminate the complexity of the issues involved for policy makers in developing countries. Four types of fiscal incentives are explored: namely, resources, responsibility, autonomy, and accountability. The paper then assesses the effectiveness of the Vietnamese system of fiscal decentralization for achieving pro-poor outcomes through a devolved system of fiscal incentives. The paper suggests that evidence from the Vietnamese case indicates that fiscal decentralization may contribute to poverty reduction outcomes, but does not provide evidence that fiscal decentralization is in and of itself inherently pro-poor. Rather, the lesson from Viet Nam is that if poverty reduction is an explicit objective for government, the system of fiscal decentralization should target pro-poor outcomes through an appropriate system of fiscal incentives. Since 2002, budgetary reallocation and income redistribution linked to poverty outcomes has been more strongly associated with equalizing fiscal transfers than with devolved finances in general. This represents a broadly correct approach to target poverty outcomes in a territorially unbalanced country like Viet Nam. Targeted transfers contribute to pro-poor outcomes by increasing the level of resources available to finance poverty spending. However, increasing the level of fiscal transfers for poverty spending will not ensure that fiscal transfers are then spent efficiently. In order to better realize these efficiency objectives, the government can promote greater fiscal and administrative decentralization of resources and responsibility to district- and commune-level governments. Further gains in this area must also be supported by greater levels of fiscal autonomy and fiscal accountability at the local government level.
The paper examines the progress being made in local finance reforms and indicates pathways to advance those reforms. A summary of the effects of decentralization is given as a contextual background for the discussion of local finance reforms. The inefficient tax assignment has constrained the mobilization of local tax revenues even as local government units have become very dependent on the intergovernmental fiscal transfer, called the internal revenue allotment. The paper raises the importance of revisiting the internal revenue allotment formula. It identifies the local finance reforms currently being undertaken and reports the progress being made at the local and national level. The final section comments on the outstanding issues in local finance reform and gives some recommendations.
This book explores the important topic of fiscal decentralization in Asian countries, and focuses on how government finance and administration are being reformed to bring budgetary decisions closer to voters. The focus on Asia is especially important because all countries in this region have been undergoing serious fiscal reforms in the past decade. They include one of the biggest decentralization reforms in Indonesia, significant reforms in democratic Philippines and Vietnam which are in transition, and Japan, whose fiscal reconstruction program is covered extensively. India and China, which are also covered, are very special cases because of their size and because their policies must fit decentralization into a significant economic growth scenario.
In this article, the determinants of health care expenditure per capita in Spanish regions are analysed. The coexistence of several models concerning the degree of spending power decentralization and financing systems makes Spain a singular case and allows us to draw conclusions relevant for other countries decentralizing their health care systems. Analysing the Spanish case also serves to show a number of pitfalls affecting econometric estimation of the effects of income and demographic structure on health expenditure. Because the reliability of parameter estimates is a key issue in the literature on the determinants of health expenditure, these potential problems should be taken into account when estimating and interpreting results.