Wallace Oates is one of the most important scholars in both environmental economics and public finance and this new volume of his essays brings together his recent research in both these areas, covering theory, research and policy. The first half of the book includes papers on the political economy of environmental policy, the analysis of environmental regulation and environmental federalism. The second half deals with fiscal and regulatory competition, state and local government finance and fiscal federalism. This new collection will be essential reading for scholars and students in both environmental economics and public finance.
Wallace Oates is one of the most important scholars in both environmental economics and public finance and this new volume of his essays brings together his recent research in both these areas, covering theory, research and policy. The first half of the book includes papers on the political economy of environmental policy, the analysis of environmental regulation and environmental federalism. The second half deals with fiscal and regulatory competition, state and local government finance and fiscal federalism. This new collection will be essential reading for scholars and students in both environmental economics and public finance.
This paper concerns redistribution and public good provision in an economic federation with two levels of government: a local government in each locality and a (first mover) central government. Each locality is characterized by two ability-types, and the ability-distribution differs across localities. The central government redistributes via a nonlinear income tax and a lump-sum transfer to each local government, while the local governments use proportional income taxes and provide local public goods. We show how the redistributive role of taxation is combined with a corrective role, and how the central government can implement the second best resource allocation. Copyright 2008 Blackwell Publishing, Inc..
Decentralized countries around the world use different institutional set-ups to assure that the system of local government finances achieves the objectives sought by the public sector through the decentralized delivery of public services. In many centralized countries, the Ministry of Local Government is tasked with the exclusive responsibility to monitor and coordinate all aspects of intergovernmental relations, including local government finances. While the Ministry of Local Government generally also plays a role in more decentralized countries, it is not unusual for broad-based or inter-ministerial commissions to be tasked with tracking and considering local government finance issues in more decentralized countries. In contrast, other decentralized countries rely more heavily on local government associations or even the legislative branch to monitor and analyze the system of local government finances and to represent local government interests at the national level to assure a balanced system of intergovernmental relations. Finally, there are a small number of decentralized countries around the world that lack a formal intergovernmental mechanism to coordinate local government finance issues altogether.
Abstract: The past two decades have witnessed numerous attempts in developing countries at institutionalizing decentralization. Political leaders tended, before then, to believe that centralized planning was the key to economic growth and development. Ghana has not been excluded from this wave towards the transfer of power, competences, resources and functions from the centre to local levels of government. While Ghana has achieved significant political and administrative decentralization as well as decentralized planning, fiscal decentralization has been the unyielding component of the process. This paper examines the desirability, or otherwise, of fiscal decentralization in the context of funding arrangements. It uses the funding regime model as a basis for analysing how regulatory provisions, political and economic factors and practices, determine financial capacity of sub‐national governments. Evidence in the paper leads to the conclusion that sub‐national governments in Ghana do not support fiscal autonomy. They, instead, prefer being served and financed by the central government.
Although local government is not allowed to raise loan by themselves, there are a lot of debts raised by local government agencies in the name of decentralization of financing. So whether local government has the right to issue their bonds is a question that should be addressed immediately. In our country, we think, there exist the theoretic basis and practical conditions of issuing local government bonds. Allowing local government to issue bonds is inevitable to expand local government's debt and is the necessary step towards perfecting our country's fiscal system.
In many countries fiscal decentralization characterizes the relationship among different levels of government. In those countries, local authorities have the prerogative to tax their constituencies. However, fiscal decentralization is seldom balanced in terms of tax and expenditure assignments. In order to equalize tax capacities, to internalize spillovers or to achieve national policy objectives, central governments often provide transfers to lower levels of government. These transfers may affect the incentives to manage or to improve fiscal performance. Specifically, according to Litvack, Ahmad and Bird (1998), such transfers may induce low `tax effort' in the regions. The purpose of this paper is to investigate theoretically and empirically this relationship between intergovernmental transfers and local tax effort. An initial problem to deal with is the definition of `tax effort' in itself. First, one can associate tax effort to high tax rates. Smart (1998) asserted that such association is inadequate. Second, one can measure tax effort using actual tax revenues or the difference between actual the predicted value of tax revenues. This approach has been mainly adopted by the empirical literature on the relationship between intergovernmental transfers and local tax effort [Baretti, Huber and Lichtblau (2000), Von Hagen and Hepp (2000), Jha, Mohanty, Chattergee and Chitkara (1999), Sagbas (2001)]. Although tax revenue is an accurate and observable variable, still one can hardly say that it is a good estimate of tax effort. The reason is for a given region in a given time period tax revenue is affected by many potential variables outside the control of local governments (like idiosyncratic shocks to some specific tax bases) which are seldom well controlled for in estimates of tax capacity. In practice local tax effort encompasses a broad set of actions. One of them is clearly the battle against tax evasion. In spite of its importance, this problem has been only recently addressed by the local public finance literature. Bordignon, Manasse and Tabellini (1996), presented a model where a local government exerts costless effort to catch tax evader workers and they showed how intergovernmental transfers affect tax enforcement. The drawback of this model is that, in reality, tax enforcement is not costless and the cost depends upon other variables chosen by local authorities, like the efficiency of the local tax administration. Although Prud'homme (1995) and Tanzi (1996) have informally signaled the possible inefficiencies of the local tax administrations, this feature has not been raised by the theoretical or the empirical literature. The purpose of this paper is precisely to incorporate such dimension in the assessment of the relationship between intergovernmental transfers and local tax effort. The theoretical framework assumes that in each region there is one representative habitant and a local government. The habitant posses a low or a high-valued property. The local government maximizes tax revenues. In a first period, the local government invests resources to improve the efficiency of the tax administration or to lobby the central government in order to obtain discretionary transfers. This decision is affected by the political cost of reforming the tax administration and on the ability of the local government to negotiate with the central government. Thus, in our model, intergovernmental transfers are endogenous and simultaneously determined with the reform of the local tax system. In a second period, the local government sets the property tax schedule. But, as the local government is unable to observe the value of the property, it has to rely on the habitant announcing this value. Finally, in the third period, the local government decides to enforce the tax law by randomly auditing such announcement. If the habitant is discovered having misreported, the local government sets the corresponding property tax and imposes a penalty. We assume that audit is perfect but costly; the cost depending on the efficiency of the local tax administration. We solve the model backwards. As the local government cannot commit to the auditing probability when it designs its tax policy, the equilibrium of the audit-report game is in mixed strategies, with auditing and tax evasion. Then we find the optimal tax schedule. In order to reduce the stake for tax evasion, the local government distorts downwardly the high-valued property tax. Finally, we solve for the decision of the local government regarding how much resources to invest for improving the efficiency of the tax administration. We find that this decision is negatively associated with the domestic political costs and positively with the ability to negotiate with the Federal Government. The predictions of the model are empirically tested using data for Argentina. The theory suggests a two-step approach. In a first stage we run a probit estimation where the probability of a certain province to reform its tax system (or receiving discretionary transfers) in a given year will be correlated with domestic political variables (e.g. divided government) and also with variables describing its bargaining power vis a vis the federal authorities (e.g. political representation at the National Congress, political party of the President vis a vis that of the Governor). In a second stage, we include this exogenous instrument of tax reform in a regression where the evolution of actual provincial tax receipts are regressed against this variable plus other controls like population, density, provincial income distribution and production structure. Notice that this two stage empirical approach allow us to deal with a frequent problem encountered in the empirical literature given by the endogeneity bias affecting some of the variables of interest, like federal transfers (e.g. Jha, Mohanty, Chattergee and Chitkara (1999), Sagbas (2001)).
Local government fiscal competition means a series of fiscal activities competing for various economic resources taken by local governments by means of finance in order to enhance the economic power and improve the potential welfare of the regions. Local government fiscal competition includes expenditure competition and tax competition, whose theoretical basis is fiscal decentralization theory. At the different stages of a national e-conomic development, the manifestation of local government fiscal competition is different. China has experienced the fiscal competition characterized mainly by tax competition toward the fiscal competition including tax competition and expenditure competition as well since reform and opening-up. With her access to the WTO and further fiscal decentralization, the expenditure competition is getting more and more important. Based on fiscal competition , the paper attempts to analyze China's economic reform of market from a new approach.
Even in the wake of the most sweeping campaign finance reform law to be enacted in three decades, further significant reform is inevitable. Special interest money continues to flow through loopholes in the Act, and the Presidential Election Campaign Fund is near collapse. The next reform should encourage broader participation in the political process by individual citizens, both to dilute the power of special interests and to serve independent democratic values that recent Supreme Court jurisprudence has identified as vital to meaningful reform. We propose adopting a refundable tax credit of $100/taxpayer for political contributions to federal candidates and national parties; the credit would be targeted to lowerand middle-income Americans. A refundable tax credit is equivalent to giving each eligible citizen up to $100 annually to use for political contributions. We also present data about the relative importance of political contributions by special interests (corporate, labor and other PACs) and individuals that undermine many of the assumptions on which past reform has been based and that have not been discussed in the legal literature. The data clearly show that small contributions by individuals are the dominant source of money in campaigns, and that the influence of special interest money is subtle, appearing to “purchase” benefits like access, a place on the agenda, and minor policy details. Working from an accurate picture of who really pays for politics, and drawing from the experience at the federal and state levels with similar tax refund programs, we present the tax credit as a reform that is simple, easy to administer, and likely to improve political participation by average Americans. Thus, our proposal, unlike the complicated voucher plan with anonymity put forward by Ackerman and Ayres, is likely to be adopted by Congress; moreover, it will appeal to a bipartisan consensus because it mixes public funding with a decentralized allocation mechanism using a tax subsidy.
This article discusses the contemporary problem of the county or village-town fiscal difficulties from the view of the fiscal decentralization theory, and points out that the root of the county or village-town fiscal difficulties lies in the irrational system arrangement of fiscal decentralization on the basis of the statement of several basic principles of rational fiscal decentralization. The essential way to extricate from the county or village-town fiscal difficulties is to aim at rational fiscal decentralization among various levels of governments.
National governments often choose to delegate tasks and burdens to lower levels in a comprehensive system of administration. Local and regional governance thereby becomes an important factor in policy implementation. This paper focuses on the incentive problem that follows from such a delegation of competences to collect taxes and do lending at the local level in a multi-level geo-administrative system. The paper uses the Danish administrative system to illustrate the actual outcomes from such incentive problems. A two-step estimation procedure will be used to derive results on the importance of incentive problems in multi-level geo-administrative systems. Setting up elaborate administrative systems will introduce agency problems that lead to inefficiencies in both local and national governance.
The effective economy must be able to allocate resources, opportunities,risks,and furthermore social power effectively. From the aspect of finance, how to allocate the tax revenue between central and local statement and make it optimal will influence the enthusiasm of central and local statement to supply demanded public goods for economic activities. The analysis of the Cobb-Douglas production function on the variables of the national public goods, the local public goods and the private capital reveals that the degree of finance decentralization is optimal when the proportion of the tax revenue possessed by the local government equals to the rate of the elasticity of the local public goods to the sum of the elasticity of the local public goods and the elasticity of the national public goods.
The tax-sharing system reform since 1994 has hardened budgetary constraints on local governments, but has not derailed the fiscal decentralization trend since China started the reform and opening up. This fiscal decentralization has provided a strong impetus to local finance, so that local governments have become quite enthusiastic in pursuing local economic development and improving local economic efficiency. As market competition intensifies, the public-owned enterprises have gradually become a financial burden on local finance. Meanwhile, the non-state sector has made an increasing contribution to the local economy and to local coffers. Therefore, it has become the optimal choice for local governments, in pursuit of their own interests, to reform the ownership structure of public-owned enterprises.
Fiscal federalism implies a challenge of holding fiscal discipline at the local level. Recent analyses of fiscal adjustment have addressed the design of fiscal and political institutions for the U.S. states, and have shown how tax limits and anti-deficit rules strengthen immediate shock adjustment. Here we extend the evidence to the case of centralized financing in Norway. In this system central government takes a larger responsibility in smoothing decentralized government revenue, but at the same time the localities are more vulnerable to shocks because of their limited room to maneuver. The empirical analysis of responses to budgetary shocks shows that local public investment is the main shock absorber in this system and that investments are procyclical. Local fiscal crisis is avoided, but decentralized government is destabilizing.
Twelve years into the implementation of the Local Government Code of 1991, it is but opportune to assess how the key features of this landmark legislation has contributed to (or detracted from) achieving the balance between local autonomy and accountability. The literature on fiscal decentralization suggests that these two goals are not incompatible. In fact, real autonomy (in the sense of subnational governments being able to link their spending decisions with their revenue/tax decisions) promotes fiscal responsibility. In the context of the ongoing debate in the Philippines, however, local autonomy has been equated (by many LGUs officials) with the independence of LGUs from central government interference. As such, LGU officials have focused more on securing even higher levels of block grants in order to address the widely perceived vertical fiscal imbalance. However, closer scrutiny of the problem indicates that greater_x000D_ tax decentralization coupled with a well designed intergovernmental transfer system that includes elements of fiscal equalization and categorical grants conditional on the achievement of minimum service standards would better enhance the gains that are forthcoming from the decentralization process while minimizing the risks of macroinstability.
The distribution of competencies between the different levels of a federal system may have remarkable effects on economic growth, because mainly the regions of a country contribute to national economic development. Thus, a governments economic policy is reasonably shaped along regional lines. The theoretical discussion in economics focuses however on the efficiency aspects of a decentralized provision and financing of public services; rarely the argument is raised that decentralization or federalism increases growth through a higher ability of the political system to innovate and to carry out reforms. After a discussion of the theoretical arguments on federalism and growth, we address the empirical question in this paper how important the assignment of decision making competencies and the design of fiscal federalism are for economic development. Finally, on the basis of existing theoretical and empirical studies on economic growth and federalism, open questions and possible ways of answering them are presented.
A major theoretical as well as political approach to transport infrastructure investment and management is the idea that such services are public goods and should not be subject to private market considerations. However, from time to time, public provision seems to fail, which increases the importance of various forms of private sector participation. Assessing the impact of devolution on the country's road infrastructure, the author underscores the lack of coherence in the design and redistribution of resources and responsibilities, which resulted in a coordination gap between national government agencies and local government units. An important insight is that the private provision of a public good may be feasible, for as long as its consumer-beneficiaries can be made to pay a use price, such that the revenue stream to the private provider is greater than the cost of construction, administration, and upkeep of the public good.
Laura B. Rawlings, Lynne Sherburne-Benz, Julie Van Domelen
The study seeks to answer four questions that summarize the fundamental issues in the international debate about the capacity of social funds to improve beneficiaries' living conditions: o Do social funds reach poor areas and poor households? Do social funds deliver high-quality, sustainable investments? Do social funds affect living standards? How cost-efficient are social funds and the investments they finance, compared with other delivery mechanisms? The findings and lessons from this research reflect a specific moment in the evolution of six social funds and therefore may not fully predict the future impact of current investments. The evaluation assesses subprojects identified and implemented between 1993 and 1999, a period when longer-term objectives-such as increasing access to and utilization of basic services-began to supplant the funds' original emergency mandates. The time period selected allowed enough elapsed time following the implementation of the social fund subprojects to make measurement of impact and sustainability possible. The evaluation does not consider the effects of social fund projects on employment or on income generation-the original objectives of the first generation of social funds, which were introduced in Latin America. It also does not discuss the effect of social fund investments on capacity building-a more recent emphasis of social funds seeking to assist decentralization and community development.
The restructuring of the state bureaucracy deals largely with the relations between the state and market. It does not tell us how the Chinese government has used modern economic means to manage and regulate the economy. This chapter shifts to the latter aspect, focusing on the reforms in the key sectors of taxation, finance, and the enterprise system. In reforming China's fiscal and financial systems, the leadership sought to achieve two main goals. First, fiscal and financial reforms aimed to promote the development of the market economy by changing the relationship between the state and the enterprises, and second, the reforms were expected to build a modern state by managing the economy more efficiently and shifting economic power from local government to the central state. This chapter attempts to link the reforms in taxation, finance, and state-owned enterprises (SOEs) with state-building efforts by the leadership. Taxation reform and the tax regime China's fiscal system since the late 1970s has undergone a drastic transformation from a unitary system to a federal one. When the leadership first embarked on economic reform, it recognized that enterprises as well as local governments had to be provided with incentives to support the reform effort. This was achieved through fiscal decentralization. But this process augmented local autonomy at the expense of the center's fiscal capacity.