Die Kompetenzverteilung zwischen den verschiedenen Gebietskörperschaftsebenen eines föderativen Staates kann sich erheblich auf das Wirtschaftswachstum auswirken, da es insbesondere die Regionen eines Landes sind, die zu seiner gesamten wirtschaftlichen Entwicklung beitragen. Dies legt einen regionalen Zuschnitt der staatlichen Wirtschaftspolitik nahe. Aus ökonomischer Sicht wird in der theoretischen Diskussion hingegen vornehmlich auf die Effizienzaspekte einer dezentralen Bereitstellung und die Finanzierung öffentlicher Leistungen abgehoben. Selten findet sich das Argument, dass Dezentralität oder Föderalismus – vermittelt über eine höhere Innovationsund Reformfähigkeit des politischen Systems – zu einer Steigerung des Wachstums führen. Nach einer Diskussion der theoretischen Überlegungen zu Föderalismus und Wachstum wenden wir uns in diesem Beitrag der empirischen Frage zu, welche Bedeutung die Zuordnung von Entscheidungskompetenzen und die institutionelle Ausgestaltung des fiskalischen Föderalismus für die wirtschaftliche Entwicklung eines Landes haben. Auf Basis der bisher existierenden theoretischen und empirischen Studien zu Wirtschaftswachstum und Föderalismus werden offene Fragen und mögliche Ansätze zu ihrer Beantwortung formuliert. <bold>Abstract</bold> The assignment of competencies in a federal state can have a strong impact on economic growth, because the regions of a country particularly contribute to its total economic development. Hence, public policy should be tailored to regional needs. Public economists however mainly focus on the efficiency of decentralized public goods provision and financing; seldom arguments concerning political innovation due to a decentralized experimentation of policies and its impact on economic growth are considered. After a discussion of theoretical arguments on federalism and economic growth, the empirical question is addressed in this paper whether the assignment of autonomy and the institutional design of fiscal federalism influence economic development of a country. On this basis, open question and potential routes of research are formulated.
Edward W. Hill, Billie K. Geyer, Claudette Robey, John F. Brennan · 5 authors
This paper investigates the transportation expenditure geographic pattern in Ohio from 1980 to 1988. It focuses on the location and spatial patterns of state transportation spending and finance. It then compares these variables with transportation need and demand indicators. The aim of the report is to ascertain whether or not the state's transportation money is being spent appropriately to meet the many challengers occurring today in metropolitan areas. Some of these challenges include traffic congestion, aging infrastructure, and decentralizing economic development.
Very few researchers have addressed the long‐term financing arrangements of municipal governments in developing countries. No research has evaluated empirically either the elements that affect municipal borrowing in developing countries or what those elements reveal about the municipal credit system. Analyzing Brazilian municipal loan and financial data with a series of simultaneous equations, this paper addresses the following questions: What factors determine municipal government investment levels, borrowing levels, and borrowing prices? What do empirical data reveal about the character of the Brazilian municipal credit system? The results show that investment, borrowing, and borrowing prices are interconnected. Furthermore, while some signs of a market‐based system exist, there is evidence that investment and borrowing decisions are made within an administered market.
The main proposal of this paper is to try to make calculable how politicians are favoring in their discourses, regarding the new General Law of Budgetary Stability approved in December 2001, the process, which is still taking place in Spain. For this goal the research offers a new approach through the construction of a of decentralization. The index of decentralization developed from the matrix goes from 9.69 for the family of arguments A (budgetary and financing autonomy) to only 3.33 for the family of arguments B (income redistribution and spending on social issues). It is remarkable how most of the political parties attacking the law and in opposition of the government reach 10.00 points. In other words, they are really supporting through their discourses. The political party in the government reaches only 3.80 points, but also he is offering decentralized arguments supporting the law.
Tertiary education in the U.S. requires large investments that are risky, lumpy, and well-timed. Tertiary education is also heavily subsidized. By making the risk of human capital investment more acceptable, especially to low wealth households, subsidies may increase investment in human capital, lower long-run inequality, and reduce aggregate precautionary savings. However, subsidies also encourage more poorly prepared students to attend and are usually financed via distortionary taxes. In this paper, we find that observed collegiate subsidies improve welfare substantially relative to the fully decentralized (zero subsidy) outcome. We show that subsidies help smooth consumption, lower skill premia, increase interest rates as precautionary savings fall, lower the inequality of both consumption and wealth, increase intergenerational income mobility and raise welfare, even when financed by distortionary taxes.
Konstantin Sonin, Centre for Economic Policy Research (United Kingdom)
In a federal state, political leaders of constituent units might protect their enterprises from the federal center (e.g., allowing them not to pay federal taxes). The effectiveness of such protection depends crucially on the ability of local authorities to extract rents from enterprises. They can easily do so, if there are a small number of enterprises with large employment, and local monopolies can be effectively sustained. They cannot do it so easily if regional industry is competitive, political opposition is strong, and the federal center has enough means to enforce payment of taxes. We build a simple model to argue that it is the industrial structure of constituent units that determines political relations between them and the federal centre. The theory is supported by the recent experience of Russia, China, and Argentina.
Most economists agree that new investments in highways at this point in time in the United States have little impact on overall growth in output. New highways play a more important role in shifting economic activities among places, drawing jobs from other locations into the highway corridors, a phenomenon known as negative spillovers. The objective of this dissertation is two-fold, to examine the proposal to decentralize highway finance, which aims to solve the financial responsibility mismatch problem that stems from economic spillovers of highways, and to test the hypothesis of economic spillovers of highway investment at the metropolitan level. First, to better understand how spillovers influence the highway investment decision, the theoretical framework from the interjurisdictional tax competition literature is borrowed to model governments' investment behaviors. Numerical simulations show that decentralized local governments, which independently maximize output in their own jurisdiction, may engage in wasteful investments in highways with the presence of spillovers. Second, to shed more light on the spatial detail of economic spillovers, empirical tests of the spillover hypothesis are conducted at the metropolitan level, with census tracts as the unit of observation. The results of the quasi-experiment reveal census tract employment growth patterns that confirm the existence of negative spillovers caused by the opening of the Interstate 105 in 1993. The benefiting area, which grew substantially after the highway was opened, is limited to a long narrow corridor around the highway, while nearby locations outside the corridor experienced slow growth relative to the rest of the metropolitan area after controlling for various factors. Together, these results suggest that although negative spillovers are present at the metropolitan level, decentralizing highway finance may not be an effective policy to deal with the financial responsibility mismatch problem. Highway finance should remain centralized within metropolitan areas, and regional governing bodies should pay special attention to the distributional impact of highway projects.
Vertical fiscal imbalance, decentralized responsibility of spending with centralized financing, creates a common pool problem with spending pressure towards central funds. A model of decentralized government spending under vertical fiscal imbalance is developed, and the importance of national political characteristics for internalization of costs and spending level is investigated in an econometric analysis of Norway during 1880–1990. We argue that in a parliamentary democracy, the internalization of costs is influenced by the party fragmentation of parliament. This is confirmed by the econometric analysis using a Herfindahl index as a measure of fragmentation and political strength.
This paper reviews the economic rationale for and against decentralization with particular attention to the organization and delivery of education. The paper frames the overview within the standard efficiency-equity trade off and highlights the increasingly important role of incentive mechanisms, accountability, and citizens' participation. The discussion then turns to the issues that are specific to decentralizing education, including the pros and cons of financing schools from local taxes, and a taxonomy and description of institutional arrangements around the world. A brief review of evaluation studies of decentralization reforms in education concludes the paper.
The impact of local government spending on output growth is estimated using a panel of Brazilian municipalities during 1985–1994. Attention is focused on three expenditure categories, housing/urbanization, health/sanitation, and transport services, which are expected to be growth-enhancing, and their sources of finance (local taxes, intergovernmental transfers, and borrowing). The determinants of these spending categories are also examined. The size of the municipality, measured by the resident population, is shown to affect government spending nonlinearly. This is a contribution to the recent empirical literature on the linkages between decentralized government spending, public finances, and economic growth at the local, rather than national, level.
INTRODUCTION Decentralization of government seems to be one of the intellectual darlings of public finance in the 1990s, just as direct consumption-based taxation in its various guises (e.g., the expenditure tax, the tax on consumed income, the flat tax, the X-tax, and the simplified alternative tax) was the darling of the 1980s. More important, many countries are considering decentralization-or have actually embarked on a policy of decentralization. The question of tax assignment-which level of government should tax what in a decentralized system-is an important aspect of the literature of fiscal decentralization. Unfortunately, some of those responsible for decentralization policy, especially in less developed countries (LDCs) and countries in transition from socialism, are not always thinking clearly about issues of tax assignment and are not taking due cognizance of international experience. At best they may make choices that are sub-optimal; at worst, they run the risk of repeating mistakes other countries have made-mistakes transition countries and LDCs can ill afford to make. These risks are aggravated by the fact that the literature is always not clear on some issues.
This paper studies optimal earnings taxation in a three period life cycle model where the taxes raised to finance an exogenous amount of public expenditure are allowed to be differentiated across ages. Agents choose their level of education when young and their age of retirement when old. We first look at the problem of optimal taxation when the young can borrow and then turn to the case where young face borrowing constraints. It is shown that, without borrowing constraints, a first best optimum can be decentralized by setting a zero tax rate in the third period and a first period tax lower than the second one.\nWith the borrowing constraint, the government may not be able restore intertemporal efficiency in which case a zero tax rate when old may not be optimal.
An optimal linear world income tax that maximizes a border-neutral social welfare function provides a drastic reduction in world consumption inequality, dropping the Gini coefficient from 0.69 to 0.25. In contrast, an optimal decentralized (i.e., within countries) redistribution has a miniscule effect on world income inequality. Thus, the traditional public finance concern about the excess burden of redistribution cannot explain why there is so little world redistribution.
Recent research on federalism is extremely divided. While some tout the benefits of “market-preserving” federalism, others point to the fragmentation and incoherence of policy in federal states. This research bridges the divide by analyzing the political andfiscalstructures that are likely to account for the highly divergent economic experiences of federal systems around die world. To test these propositions, the authors use an original data set to conduct analyses of budget balance and inflation infifteenfederationsaround the world from 1978 through 1996. The empirical research suggests that the level of fiscal decentralization, the nature of intergovernmental finance, and vertical partisan relations all influence macroeconomic outcomes. The find- ings have broad implications for the widespread move toward greater decentralization and for the theoretical literatures on federalism and macroeconomics.
The opening page of this book says that, in recent decades, there has been a ‘substantial increase in the mobility of capital and population between the individual jurisdictions of long‐established federal states (such as Canada, Germany and the USA) and among the formerly independent member countries of the European Union.' It adds that the book will seek to show that the results of this increasing mobility are that fiscal decentralization is essentially beneficial for resource allocation, at least for local public goods, but not for income distribution. It would be apt to start such a book with some data illustrating the ‘substantial increase' in the mobility of population and capital in the places cited. However, the author gives no information for Canada or Germany. For the USA, his data show that inter‐state population mobility has actually fallen since 1970; and while he seems to infer from the falling inter‐regional distribution of incomes in the USA between 1900 and 1990 that capital mobility has increased, this fall might reflect the effects of sustained rather than accelerating migration. For the EU, he accepts that the mobility of labour between member countries is still very low. So the only clear evidence given for increased mobility seems to be that of capital within the EU.
We provide a model incorporating features of local public finance in Japan, including close fiscal ties between different levels of government as well as bureaucratic determinations of intergovernmental transfers. The discretionary nature of transfers softens local budgets ex post, which exerts perverse incentive effects on local governments ex ante. Fiscal decentralization that assigns more revenue responsibility to the local level serves to counteract this moral hazard incentive. The emphasis is on the endogenous nature of regional fiscal capacities at the local level. Fiscal devolution motivates local jurisdictions to become fiscally independent wherever possible.
We reexamine the properties of optimal fiscal policy and their implications for implementable capital accumulation. The setup is a standard endogenous growth model with public production services, augmented by elastic labor supply. We show that, when a benevolent government chooses a distorting income tax rate to finance public production services by taking into account the competitive decentralized equilibrium, public production services can no longer play their traditional role as an engine of long-run endogenous growth. This follows from a simple combination of Ramsey second-best fiscal policy and endogenous labor/leisure choices.
Ernesto Rezk, Lucrecia Rodas, María Cecilia Gáname
ADMINISTRACION FISCAL, FINANZAS LOCALES, DESCENTRALIZACION GUBERNAMENTAL, GOBIERNO MUNICIPAL, TRIBUTACION, TAX ADMINISTRATION, LOCAL FINANCE, DECENTRALIZATION IN GOVERNMENT, MUNICIPAL GOVERNMENT, TAXATION
In this paper we analyze the optimal degree of centralization for the supply of public goods. We identify the reliance on an exclusion mechanism as a central feature of the decentralized provision of public goods. An exclusion mechanism induces a contest between users of the public goods who want to free ride and the providers who want to exclude free riding. This contest explains the costs of decentralization. A centralized contribution does not rely on an exclusion mechanism to finance the public goods but on taxation which induces different types of transaction costs. A comparison of the relevant distortions explains the optimal degree of centralization of the supply of public goods.
Musgravian" externalities, formulated and illustrated by Musgrave in a 1966 paper on "social goods" are seen in this paper as one form of the interactions that occur between the components of a federation.The original formal apparatus is first exposed briefly.In that context, it is then considered whether and how alternative forms of federal structures are likely to achieve efficiency.Following suggestions from the literature, three such forms are dealt with: "planned", "cooperative" and "majority rule" federalisms.Next, the relevance of non cooperative equilibria is examined, in the light of an interpretation of them as "fall back" positions when disagreement occurs among members of a federation.Finally, the question is evoked of what economics and public finance may have to say on the limits to institutional decentralization, i.e. on the choice between federal, confederal and secessional structures.