Blockchain Papers

Stephen L. Ross, John Ýinger

No abstract is available for this record.

Stephen L. Ross, John Ýinger

This chapter reviews the literature on the boundary between urban economics and local public finance, defined as research that considers both a housing market and the market for local public services. The first part of the chapter considers positive theories. This part presents the consensus model of the allocation of households to jurisdictions, which is built on bid functions and household sorting, as well as alternative approaches to this issue. It also examines models of local tax and spending decisions, which exhibit no consensus, and reviews research in which both housing and local fiscal variables are endogenous. The second part of the chapter considers empirical research, with a focus on tax and service capitalization, on household heterogeneity within jurisdictions, and on the impact of zoning. The third part considers normative theories about a decentralized system of local governments. This part examines the extent to which such a system leads to an efficient allocation of households to communities or efficient local public service levels, and it discusses the fairness of local public spending. This review shows that the bidding/sorting framework is strongly supported by the evidence and has wide applicability in countries with decentralized governmental systems. In contrast, models of local public service determination depend on institutional detail, and their connections with housing markets have been largely unexplored in empirical work. Ever since Tiebout (1956), many scholars have argued that decentralized local governments have efficiency advantages over centralized forms. However, a general treatment of this issue identifies four key sources of inefficiency even in a decentralized system: misallocation of households to communities, the property tax, public service capitalization and heterogeneity. Few policies to eliminate these sources of inefficiency have yet been identified. Finally, this review explores the equity implications of household sorting and other features of a decentralized system.

Chong‐En Bai, Pan Yu, Yijiang Wang

Local governments (LGs) are seen as producers of the local public good ('the good'). An authoritarian country is one in which the government decides if the good should be produced and how much to tax to finance it, as versus a democracy in which voters decide. This paper identifies conditions under which it is more efficient for a non-democratic government to delegate to the LGs the authority to 1) decide whether or not to produce the good and2) Collect tax to finance it if the good is produced. Two conditions are identified First, when the net benefit of producing the good is sufficiently small so that, compared with the benefit, inducing LGs effort under the centralized system is too costly (a moral hazard problem). Second, when the net benefit of the is higher in a locale with a higher production cost parameters, making it difficult for the center to induce the LGs to truthfully reveal the cost parameter (an adverse selection problem). These results are consistent with the experience of China in the past several decades, where "too small to be worth bothering" and "too diversified and complicated local conditions for the center to know" have been the two most prominent official arguments made by the communist government itself for decentralization

Charles E. McLure, Jorge Martínez-Vázquez

Intergovernmental fiscal relations play a fundamental role in the economic and social development of Vietnam. As in all unitary forms of government, the central government sets national policies and assists with the financing of the activities of subnational administrative units, as well as undertaking certain expenditure responsibilities directly. On the other hand, decentralization facilitates implementation of policies that reflect the preferences of inhabitants of subnational administrative units. An important objective, therefore, is to design a system that reconciles the sometimes conflicting objectives of centralization and decentralization. This report is intended to assist the government of Vietnam in designing its system of intergovernmental fiscal relations (IFR).The next section describes the political system within which intergovernmental fiscal relations are imbedded. The third section provides an overview of intergovernmental fiscal relations in Vietnam. Section IV describes the assignment of expenditure responsibilities among levels of government, Section V discusses fiscal management and budgeting, and Section VI describes and appraises the revenue side of intergovernmental fiscal relations. These sections contain descriptions of current practice, a brief statement of criteria against which they are to be appraised, an appraisal of current practice, and recommendations for improvements. Section VII describes how the present system of subventions could be replaced by an improved system of intergovernmental transfers. This discussion focuses primarily on relations between the central government and the provinces; relations between provinces and districts and between districts and communes are generally quite similar.Working Paper Number 98-02.

Wallace E. Oates

This title presents an authoritative collection of the most significant papers on fiscal federalism and local finance. In addition to some classic papers, it offers clear and insightful presentations of conventional wisdom in the field as well as recent papers which illuminate important issues and point the way to ongoing research. Topics covered include federal tax structure and the division of fiscal functions among levels of government, the effect of local taxes on economic growth, the systems of governmental grants, income redistribution, the theory and practice of local finance and fiscal decentralization in developing countries and transitional economies.

Pranab Bardhan, Dilip Mookherjee, Bardhan, Pranab, Mookherjee, Dilip

This two-part paper provides a theoretical framework for appraising trade-offs between alternative methods of delegating authority over the delivery of public services, on the targeting and cost-effectiveness of public spending programs in developing countries. Authority over these programs has to be delegated owing to absence of information at the central level concerning local needs and costs of specific communities. In a top-down centralized system, this authority is delegated to bureaucrats by a central government that has limited ability to monitor their performance with respect to either service delivery or cost control. In a decentralized system, it is allocated instead to elected local governments or client groups, which may be subject to capture by local elites. Both systems are thus prone to local corruption and lack of accountability. Part 1 of the paper studies the relevant tradeoffs in the context of a poverty alleviation program, whose aim is to deliver a private merit good available on competitive markets to the poor. Decentralization generally dominates with respect to inter-community targeting as well as cost-effectiveness. However, the ranking of intracommunity targeting under the two systems is ambiguous, and depends on the relative degree of capture that local and national governments are prone to, besides the nature of uncertainty and preferences of the good by the nonpoor. Part 2 of the paper considers an infrastructure service provided by a public enterprise which has a natural monopoly. In this context it is shown that decentralization dominates if the following four conditions are satisfied: (i) local governments are not vulnerable to capture; (ii) local governments have access to adequate local financing sources; (iii) there are no interjurisdictional externalities in service provision; and (iv) local governments have all the bargaining power and access to relevant cost information vis-a-vis public enterprise managers. Absent any one of these institutional conditions, however, decentralization may perform worse than centralization. The Appendix develops a model of electoral competition (adapted from Grossman-Helpman (1996)) where parties are prone to capture by special interest groups, which helps identify some of the institutional determinants of the degree of capture of local and central governments.

Alessandra Pelloni

We propose a two factor endogenous growth model in which the government intervenes in the economy by financing research and/or education. We allow technology in public production to be different from technology in private production, so that public spending has a direct effect on the rental prices of factors. We characterize both the unique balanced growth path and the transitional dynamics of the model showing the steady state equilibrium to be a saddle point. We also show that while income taxation is distortive, in general, a Pareto optimal outcome can be reached by means of a consumption tax in the decentralized setting.

Jorge Martínez-Vázquez, Robert McNab

The goal of this paper is to review the state of our knowledge in the economics literature on the causal relationship between fiscal decentralization and economic growth and democratic governance, whether these relationships are uni-directional or bi-directional, and to what extent there appear to exist synergies or pre-conditions between fiscal decentralization, on the one hand, and economic growth and democratic governance, on the other.Little systematic empirical research has been dedicated to testing the strength of the bi-directional links between fiscal decentralization and democratic governance. At the present time, we have little knowledge about whether fiscal decentralization is preceded by the emergence of democratic institutions, whether fiscal decentralization encourages the establishment of local democratic institutions, or whether fiscal decentralization and subnational democratic governance occur at the same time. What we know about these issues is based on case studies and conjectures and observations from particular country experiences. The information base on decentralization and governance has been limited because case studies of the fiscal decentralization systems in particular countries often pay little attention to governance issues.There are strong reasons a priori to argue that there should be a symbiotic relationship between fiscal decentralization and democratic governance. Explicitly, and more often implicitly, democratic governance is widely acknowledged in the economics literature as a necessary condition for effective fiscal decentralization. But clearly, there is wide consensus that the relationship also works the other way. Greater fiscal decentralization, especially the devolution or delegation of tax and financing and spending powers to subnational governments promotes democratic governance through representation and accountability.

Joan Underhill Hannon

No abstract is available for this record.

Douglas H. Clark

Financing Decentralized Expenditures presents new original research papers on the structure of intergovernmental fiscal relations in virtually all types of countries and the design and implementation of transfer mechanisms between different levels of government.

Zia Qureshi

Financing Decentralized Expenditures presents new original research papers on the structure of intergovernmental fiscal relations in virtually all types of countries and the design and implementation of transfer mechanisms between different levels of government.

M. Govinda Rao

Financing Decentralized Expenditures presents new original research papers on the structure of intergovernmental fiscal relations in virtually all types of countries and the design and implementation of transfer mechanisms between different levels of government.

C. Richard Rye, Bob Searle

Financing Decentralized Expenditures presents new original research papers on the structure of intergovernmental fiscal relations in virtually all types of countries and the design and implementation of transfer mechanisms between different levels of government.

Douglas H. Clark

Financing Decentralized Expenditures presents new original research papers on the structure of intergovernmental fiscal relations in virtually all types of countries and the design and implementation of transfer mechanisms between different levels of government.

Ehtisham Ahmad, Ravi Thomas

Financing Decentralized Expenditures presents new original research papers on the structure of intergovernmental fiscal relations in virtually all types of countries and the design and implementation of transfer mechanisms between different levels of government.

C. Richard Rye, Bob Searle

Financing Decentralized Expenditures presents new original research papers on the structure of intergovernmental fiscal relations in virtually all types of countries and the design and implementation of transfer mechanisms between different levels of government.

Ismail Adams

No abstract is available for this record.

Tahir Andrabi

We examined a setting where decision making about financing a given amount of government spending is decentralized. Seigniorage is the residual tax that passively adjusts to meet the budget constraint. We place this budget making process in a repeated game setting and characterize the cooperative tax-seigniorage function. Three main results are (1) Seignioiage and transitory changes in output are positively correlated. This result holds after controlling for changes in government spending. (2) A positive (negative) covariation between current period government spending and transitory output strengthens (weakens) the positive relationship between seigniorage and transitory output. (3) Seigniorage is negatively correlated with trend output growth. Time series empirical tests using annual data for 20 OECD countries support the first two results. A test using cross-section data on 75 countries confirms the third hypothesis. Copyright 1997 by Ohio State University Press.

Pedro Cavalcanti Ferreira

In this paper a competi tive general equilibrium model is used to investigate the welfare and long run allocation impacts of privatization. There are two types of capital in this model economy, one private and the other initially public ('infrastructure'), and a positive extemality due to the latter is assumed. A benevolent governrnent can improve upon decentralized allocation intemalizing the extemality, but it introduces distortions in the economy through the finance of its investments. It is shown that even making the best case for public action - maximization of individuais' welfare, no operation inefficiency and free supply to society of infrastructure services - privatization is welfare improving for a large set of economies. Hence, arguments against privatization based solely on under-investment are incorrect, as this maybe the optimal action when the financing of public investment are considered. When operation inefficiency is introduced in the public sector, gains from privatization are much higher and positive for most reasonable combinations of parameters.

Alex Mourmouras

Government financing of schooling is necessitated by capital market imperfections. Governments are also res­ ponsible for maintaining a stock of public capital that enters private production function. In this paper the welfare implications and politics of these investments are examined in a version of Diamond (1965) growth model. It is argued that in decentralized environments where the working generation is decisive each period significant underinvestment in both schooling and in­ frastructure will be observed relative to the Ramsey equilibrium.

Jonathan Hamilton, Steven Slutsky

A model of a central government and two local governments is used to study the role of fiscal federation in reducing the effect of revenue externalities between local jurisdictions. Immobile consumers buy goods in both their own and the other local community and pay sales taxes in each community. Depending on demand parameters, the fiscal externality may be positive or negative. In the former case, the local governments set tax rates below those a central government would choose. With a positive revenue externality, the central government can use the same tax bases as local governments to finance revenue sharing grants, stimulating local public expenditure, and thus raising welfare. If communities are heterogeneous, this revenue sharing system will not be fully optimal, but it can dominate a system of exclusive central revenue collection.

Mitsuyoshi Kawase

No abstract is available for this record.

Tao Zhang, Heng‐Fu Zou

In this paper, we present an analytical model for examining the growth impact of intergovernmental and intersectoral allocation of public expenditure. The model helps us quantify the role of fiscal decentralization in regional economic growth and identify whether central and local allocation of public spending among various sectors are growth-enhancing. Applying our analytical framework to a panel data set of 16 major states in India, we have found that, in many cases of our regressions, fiscal decentralization is positively, and even statistically significantly, associated with state economic growth. The state allocation of public spending in various sectors is broadly consistent with "growth-maximizing", whereas increases in the central allocation of its budget among development projects, nondevelopment projects, and social and community services by cutting the center¡¯s spending on all other functions can promote regional growth. Furthermore, the distortionary effect of the state tax in India is dominated by the productive effect of tax-financed public spending, whereas the reverse holds for the central tax.

Cecilia Ugaz, Ugaz, Cecilia

This paper is the fruit of an attempt to distinguish the elements, present in a fiscal decentralization process, that are likely to contribute to efficiency enhancement in the provision of social services in developing countries. From the methodological point of view, the paper makes an effort, whenever possible, to isolate the economic from the political in the arguments for and against fiscal decentralization. These two sets of arguments, economic and political, both equally important, are often intermingled in the literature. The distinction between them may improve our understanding of the advantages and limitations of the selection of a 'decentralized' provision of social services. Although nearly all the aspects of the fiscal decentralization process may be of some relevance in terms of the issue of equitable social service provision, the paper tries to stress the need to provide adequate incentives to local bureaucracies through the design of transfers and through community participation.