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.
In mid 1997, Indonesia was seriously affected by the Asian economic crisis. This quickly spread into monetary, political, and social crises. Following a new presidential appointment, pressures and demands from the grass-roots to reform government systems become stronger and more persistent. Several provinces, particularly those having rich natural resources, pressed for greater autonomy. They felt that their natural resources were being taken by the central government but only a small part came back to them. If the central government did not respond to their pressures and demands, they threatened to proclaim independence from Indonesia. <br><br>Education in Indonesia has been a decentralized system since the issuance of Law Number 22/1999 on Local Government. This law was reviewed in 2004 and became Law Number 32/2004 on Local Government. The essence of Law Number 22/1999 was that education was devolved mostly to local government which in Indonesia is at the district level. As a consequence, education was no longer dominated by the central government; local government had voices in policy, planning, management, finance and delivery of education. Law Number 32/2004 revised some earlier decisions and provided more authority to Provinces. <br><br>Despite an initial impression that the Ministry of National Education (MONE) has real power, its reach is limited and constrained by political and bureaucratic structures and the capacity of those working in the system at all levels. It is worth noting that the MONEâs role is rendered even more complex by the fact that education in Indonesia falls under three ministries: MONE, Ministry of Home Affairs (MOHA) and Ministry of Religious Affairs (MORA). While MONE has the responsibility for coordinating education, each ministry has its own political and administrative agenda and processes, complicating the already complex and demanding tasks associated with decentralization. <br><br>Implementation of education decentralization in Indonesia is not easy because of its political dynamics and geographic and administrative complexity. The dynamics and complexity of Indonesia can be seen in its demography â population size and variations in density and ethnicity, and its geography â the 13,000 islands causing serious communication problems. From the political perspective, issues such as bureaucratic complexity, complex processes of decentralization due to it being driven by political and donor forces, and implementation complexity involving a range of actors and arenas have also contributed to the challenges. From the administrative view point, the challenges included rapid implementation (big bang), simultaneous political, administrative, and fiscal decentralization, and delays in establishing legal frameworks stipulating the divisions of obligatory functions between central, provincial, and district levels. In addition, the lack of capacity amongst local managers to do their jobs created real problems at the district level. <br><br>Decentralization of education in Indonesia has brought a lot of changes and one of the most important of them is community participation in education. The community must now take part in the quality improvement of educational services, which includes planning, monitoring, and evaluation of educational programs through Boards of Education.<br>
Decentralization policy in Indonesia has given an increase of authority to local government in managing their own local finance. One of the characteristics of the decentralization policy is to increase local taxing power, with the objective to optimize local own revenue in supporting local spending. Given the current data observation, it is obvious that many local governments do not have significant local own revenue to support their local spending. This paper-adopting tax elasticity method-attempts to evaluate the present local own revenue optimization. Furthermore, by adopting a decomposition of tax elasticity, this paper also attempts to elaborate factors affecting local own revenue collection. The estimated local own revenue elasticity show that most taxes and user charges, which are the main sources of local own revenue, are considered not a buoyant tax. More analysis using a decomposition of tax elasticity shows that tax to base elasticity is weak, suggesting that local governments need to improve discreationary tax changes at local level, such as local base changes, collection changes, and enforcement changes. The analysis also shows that some local tax bases are not responsive to the economic growth, which leads to the recommendation to improve local business environment, such as streamlining local regulations and reducing harmfull local taxes and user charges. Keywords: local finance, local government owned revenue, fiscal decentralization, local tax elasticity, local tax base, nuisance local taxes, local economic growth
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.
Financial decentralization, along with financial globalization, are currently two of the phenomena that concern professionals involved in reforming the local government finance and accounting systems, that are trying hard to become a language of communication for those interested in knowing the position and financial performance of local communities in Romania, as well as internationally. To meet the need of informing the taxpayers interested in knowing the methods of incorporation and usage of resources, of training financial creditors in administering their capacity for repaying any loans, as well as all the interest parties (including central government), local communities have turned to instruments they have at hand: budget and accounting.
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.
This contribution is aimed at comparing fiscal autonomy of self-governing units after fiscal decentralization in the Slovak republic. Evaluated and compared are budgets of selected Slovakian towns with the accent on the budget incomes creation. The contribution evaluates the level of self-financing as the share of own incomes to current expenditure, and also the level of self-sufficiency as the share of own incomes (including local taxes and fees) to total incomes.
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.
Published as: Jorge Martinez and Paul Smoke. Conclusion in <em>Local Government Finance: The Challenges of the 21st Century. </em>United Cities and Local Governments' Second Global Report on Decentralization and Local Democracy, Barcelona 2010.Edward Elgar, 2011. (c) United Cities and Local Governments. Published by <a href="http://www.e-elgar.co.uk/">Edward Elgar</a>. Posted with the permission of the publisher for personal use only.
This book, compiled from the 2nd Global Report of United Cities and Local Governments (UCLG) on Decentralization and Local Democracy, analyzes the architecture of fiscal decentralization in one hundred and ten countries as well as in major metropolitan areas. In the majority of these countries, local authorities are taking on more and more responsibilities for public investment and the provision of services that are essential for both economic development and the well being of their citizens.
Bulgaria is one of the first countries from the former socialist block, which adopted a new democratic Constitution as early as 1991. The Constitution affirms the model of modern democratic state and outlines the principle of decentralization, admitting the right of self-government to the municipalities. Development of the legal frame of the local self-government and the enlargement of its functions, including the regulation of the financial independence of the municipalities, was accepted as a good perspective for further development of the local self-government. \n \nBased on the above the paper analyses: \n⢠Political, administrative and financial decentralization in Bulgaria as an integral part of the process of making public institutions more efficient, responsive and accountable to citizens; \n⢠Historical background of the decentralization process - undertaken reforms; adoption of legal texts; Constitutional amendment for providing local authorities with taxation powers; establishment of a joint Working Group on Financial Decentralization; adoption of a Concept and a Program for Financial Decentralization; creation of a system of incentives which target higher local revenues, consolidated financial management potential, and maximum level of local autonomy to determine the type, scope and provision of municipal services; division of municipal budget financed public services into two groups (state delegated and local); development of Strategy for decentralization and a Program for its implementation; \n⢠The impact of national and international (Council of Europe, European Commission) institutions and NGOâs on the decentralization process. \n \nThe purpose of the paper is not only to reveal the past reforms, but to stress on the present results and to examine the intergovernmental fiscal relations and local financial management. Unfortunately despite the positive changes, made in the first years after the period of centralized economy and governance, nowadays the local finance system is almost unchanged. Some of the ascertained problems might be summarized in the following: \n \n- Presence of permanent structural deficit in the municipal budgets, caused by the discrepancy between expenditure responsibilities and the income base; \n- Complicated, non-transparent and frequently changing transfer system; \n- Insufficient financing of delegated responsibilities; \n- Reduction of the recourses for municipal investments. \n \nThe experience in our country shows that a number of former decisions and initial intentions in the sphere of decentralization end with stabilization of the centralization. In this respect the paper searches arguments, connected with the reasons for the above described situation â is it a result from: \n⢠the unpreparedness of local government institutions and local stakeholders to operate in a reformed environment and the limited capacity to design, implement and monitor decentralization policies; \n⢠or from the wish for realizing a lot of changes for very short period of time; \n⢠or the reason is in the lack of political will.
Construction of the public finance system provides financial security for public services,such as education.The financial expenditure data of 1998-2006 Year National Statistical Yearbook shows that,local governments did not increase public finance in the proportion of public service,but reduced the expenditure of public finance in the proportion of public services.This paper points out that this phenomenon is attributed to Fiscal Decentralization,one administrative system,M-type organizational structure and pressure-type system.Thus improving the fiscal decentralization reform,setting scientific and reasonable performance index,appropriately extending the term of office of local officials,and finding the balance between one man government administrative system and the central balance of public finance shall be the system of protection for the expansion of public finance in the proportion of expenditure on public services.
China's fiscal decentralization reform has gone through a strange process of unitive-segregative-unitive,it has had been institutionalized starting from the 1980s,Although the whole fiscal reform is a gradual process,the tax sharing reform in 1994 implemented by the central government is distinctively different from former reforms such as fiscal sharing and fiscal contracting,the boundary is fixed in finance power and finance affair.As viewed from the institutional transition of fiscal decentralization,there are many problems:central authority and local authority can game constantly,obvious path-dependence in institutional transition;randomness and order is reversed in decentralization;the contradiction between fiscal decentralization and administration centralization of state power;transfer payment do not standardize and so on.Therefore,the system of fiscal decentralization should be innovative from many aspects in china.
This article presents a model of optimal decentralization of economic governance. It focuses on the provision of public input for private production. It considers that the decision power is given to a local government if it has the full right to decide new investments and new taxes to finance it. Three economic forces act on this optimal decentralization of the decision. First is the centripetal force which consists in the increasing accuracy and relevance of public investments when decided more locally. The second and third are the centrifugal forces of the administrative costs on the one hand and of the fiscal competition among decentralized jurisdictions on the other. Formal proofs of the existence and uniqueness of solutions are given under special hypotheses and in general. Numerical analysis is also done to understand the impact on the optimal decentralization level of the different model parameters.
This paper explores the mechanism of China's tax growth within a framework of intergovernmental competition.Tax Competition takes place through endogenous tax collecting efficiency.Horizontal competition tends to lower the effective equilibrium tax rate,while vertical competition has the reverse effect.Since the 1993 tax reform,concentration of tax revenue to upper-level governments and regulation of local public finance imposed by the central government,have led to stronger vertical effects and relatively weaker horizontal effects.The paper offers us not only a new perspective to understand China's fiscal decentralization,but also an efficiency principle to design optimal tax sharing system.
This thesis addresses the issue of devolution and its relation to the Scottish National Party (SNP) through the lenses of historical institutionalism. It aims at answering the question, how and to what extent the devolution influenced the policies and political behaviour of the SNP as well as its internal organization. The change of the SNP is also viewed on the basis of various political theories and typologies of political parties. Because the primary aim of the SNP is to deliver independence to Scotland, the special attention is also paid to the mutual relation of devolution as a weaker form of self-determination and independence. It is possible to define three waves of the impact of devolution on the SNP. The last one leads to the establishment of Scottish autonomous institutions. Althoutgh the Labour Party tried to minimized the SNP in the political arena, the SNP took a full advantage of a new institutional setting and managed to form a Scottish government. Keywords New Labour, Labour Party, devolution, Scottish National Party, decentralization, Scotland
The government administrative expenses has the dual attributes: on the one hand,too much spending is harmful to economic growth,making local governments in a disadvantaged position in competition and doing harm to the promotion of officials,and goes against the macro-policy objectives of China Central Government at the same time;but it can improve the economic well-being of local government officials.Therefore,local governments face a dilemma on the issue of administrative expenses.This paper uses the panel data from China's 30 provinces(including autonomous regions and municipalities) from 1998-2006 to conduct empirical analysis and robustness test of the relationship between fiscal decentralization and administrative expenses.The main conclusions are as followings: In China's institutional environment,with the expansion of local government fiscal expenditure discretion,the overall effect is the increase of administrative expenses.There is a significant positive correlation between the number of administrative staff and the amount of administrative expenses.The level of regional economic development,resource endowments,and social structure has significant impact on local government administrative expenses.In the context of public finance reform,the other items of public expenditure(except for social security expenditure) have significant crowding out effect on administrative expenses.
Japanese regional systems of government are expected to undergo great reform. Regional autonomy laws have been enforced since 2000. A law to promote decentralization reform was approved to enact new regional autonomy laws in December 2006 and the decentralization reform promotion committee started in April 2007. In addition, a new local financial reform was also done though local financial reforms executed in terms of finances between the 2004 fiscal year and 2006 fiscal year. A scale reduction in the tax money allocated to local governments was one local financial reform. From April 2007, a new tax allocation was executed for simplification of the delivery standard. Fiscal resources were decreased by the local financial reforms, so local governments were requested to improve the physical conditions of their cities, towns and villages. Therefore, a large number of municipality mergers of the â Heisei' Era are advancing now.Introduction of the â Do-Shu' system is being discussed as a system for not only the city, town and village governments but also for the administrative prefectural governments. In addition, the Act for Comprehensive Development of the National Land was revised by the Japan Development & Construction Co., Ltd. Plan based on the past Act for Comprehensive Development of the National Land of 2005, and the name changed to the Country Formation Plan. A variety of local system reforms have been continuously carried out since the 1990's.In this paper, the following three points are clarified. 1. Finances in Japan lacked financial moderation in the 1990's and this caused the need for modulation. 2. Problems were caused by local public finance trying to carry out measures to boost the economy of the local government in the 1990's. 3. Problems have increased with local financial reforms being executed before the problems of the local public finances are corrected. A new problem has occurred in Japanese regional finances because of the introduction of decentralization and the Do-Shu system.The central government faced a fiscal deficit in the 1990's. The local governments then experienced a fiscal deficit because the central government made the local governments subrogate the deficit. Therefore, the central and local governments need a fiscal reform. The central government hands over their work to the local governments to decrease their own fiscal deficit, and has reduced the local tax allocation distributed to the local governments. The central government is planning to further decrease the local tax allocation by introducing the â Do-Syu' system in the future.JEL Classification: H62, R51, R58
Based on analyses on the usage and sources of the loans of local government-backed financing vehicles, this paper discusses the challenges of public capital financing that local governments in China face. Recently rapid increase of the loans of local government-backed financing vehicles could induce serious risk to local governmentsâ fiscal stability. The authors argue that the traditional thoughts focusing on inappropriate fiscal decentralization might not bring to light the core problems concerning local government-backed financing vehicles. This paper suggests that the problems indeed reflect the deficiencies of the public capital financing and investment system of local governments in China. Currently, a comprehensive solution is needed in order to establish a sustainable public capital financing system. The authors insist that a public capital financing system based on municipal bonds would be more efficient. Meanwhile, a rigorous public capital budget constraint would be indispensable to maintain local governmentsâ fiscal sustainability.
Decentralization is a mechanism by means of which the local administration authorities receive the authority and the resources allowing them to make decisions concerning the provision of public services. The balancing of the local budgets in Romania is the consequence of the financial decentralization, according to which the local communities were entrusted with/allotted their responsibilities and then they were entrusted with/allotted their resources as well. The separation of the attributions of the central and of the local administration conditions the way the revenues and the expenses were distributed between the two levels. This process depends on the degree of regional development, on the concentration of the population on its welfare degree, on the tasks each community has to face, on the possibility of financing the foreseen expenses from local resources.