The purpose of our paper is to analyze the main factors which influence fiscal balanceâs evolution and thereby identify solutions for configuring a sustainable fiscal policy. We have selected as independent variables some of the main macroeconomic measures, respectively public debt, unemployment rate, economy openness degree, population, consumer goodsâ price index, current account balance, direct foreign investments and economic growth rate. Our research method uses two econometric models applied on a sample of 22 countries, respectively 14 developed and 8 emergent. The first model is a multiple regression and studies the connection between the fiscal balance and selected independent variables, whereas the second one uses first order differences and introduces economic freedom as a dummy variable to catch the dynamic influences of selected measures upon fiscal result. The time interval considered was 1999-2013. The results generated using the two models revealed that public debt, current account balance and economic growth significantly influence the fiscal balance. As a consequence, the governments need to plan and implement a fiscal policy which resonates with economy priorities and the phase of the economic cycle, as well as ensure a proper management of the public debt, stimulate sustainable economic growth and employment.
Intergovernmental fiscal and finance relations have a deep impact on characteristics of China's economy and the behavior of local government at all levels. This paper wants to figure out the basic logic for the allocation of financial resources among regions under the implicit financial decentralization. Based on local government financing vehicles' (LGFV) debt data and by exploiting âProvince Managing Countyâ (PMC) reform as a policy shock to construct a DID framework, this study find that city governments with better economic and fiscal status can gain more funds through bank loans and municipal bonds when facing PMC reform, whereas the less developed ones are less capable to utilize the new opportunity, thus widening the regional gap of local government financing. Mechanism analysis implicates that city's economic and fiscal status are the deciding force of the above procedure. However, the catching-up pressures and developing incentives of less developed regions can't be realized in reality. This study argue that this might be an explanation for the expansion of regional disparity along with the reform of China's central-local relationship.
Andrew Aondohemba ChengĐ”, Abel Ehizojie Oigbochie, Emem Udoh
Fiscal decentralization has become fashionable regardless of the levels of development and civilization of societies. Nations are turning to devolution to improve the performance of their public sectors. Fiscal federalism is concerned with the allocation of government resources, tax-raising powers, and spending powers to the various tiers of government. Despite the existing fiscal arrangement in the country, backed by the constitution, revenue deficits continue to impede government performance at all levels. The study aims to assess the impact of fiscal federalism on the structure of public spending in Nigeria. Friedman's theory of public expenditure was used as the theoretical underpinning of the study. The study adopted a mixed methodological approach to carry out the investigation. Documentary sources were used for data collection, while data analysis was done using descriptive statistics and content analysis. Findings of the study revealed that revenue yields had continued to dwindle in Nigeria at both national and sub-national levels between 2011 and 2021. The decline in government revenue yields was factored in by the fall in global oil prices and the lethargic nature of the non-oil sector. The study also established that the consequence of the feeble revenue base was that resultant government spending was directed more towards financing recurrent expenditure at the detriment of capital expenditure, thus crippling the drive to spur economic development. The study recommends that it is critical for the government to: Obliterate the present monolithic oil economy by emphasizing economic diversification to boost the financial base of the country and Prioritize public spending in favor of capital expenditure to propel economic growth and development.
<strong>Abstract:</strong> Local authority autonomy is critical for effective and efficient delivery of services to the people. One of the objectives of this study was to design a framework that seeks to address the challenges associated with attainment of local authority autonomy. The purpose of the framework was to support local authorities so that they participate in the implementation of development as per the needs of the people at the local level in Zambia. The study develops a framework for achieving decentralisation as an initiative for supporting public participation and local authority autonomy. The study establishes that local authorities in Zambia primarily financed through a system of intergovernmental transfers or grants, do not have adequate revenue base to guarantee fiscal autonomy and, are bogged down by limitless political interferences and regulations. In order to guarantee autonomy of local government, the study develops a framework through a pragmatic approach. Data is collected using purposive and critical case sampling, through person-to-person interviews, questionnaire interviews as well as secondary data through literature reviews and content analysis of local authority project documents. The sample size for the questionnaire was 103 computed at ninety-five percent confidence level with a five percent confidence interval. The framework was validated by 17 experts in the local government sector; that were involved in the implementation of both grant and locally financed projects. The study argues that the proposed framework could enhance decentralization and improve local authority autonomy in Zambia and the paper suggests that local government should intensify on internal revenue generation. <strong>Keywords:</strong> local government finance, local government framework, central government grants, fiscal autonomy, decentralization. <strong>Title:</strong> Achieving Fiscal Sustainability in Zambiaâs Local Government: Designing a Local Government Framework <strong>Author:</strong> Moffat Tembo, Dr. Erastus Mishengâu Mwanaumo <strong>International Journal of Recent Research in Interdisciplinary Sciences (IJRRIS)</strong> <strong>ISSN 2350-1049</strong> <strong>Vol. 9, Issue 3, July 2022 - September 2022</strong> <strong>Page No: 33-46</strong> <strong>Paper Publications</strong> <strong>Website: www.paperpublications.org</strong> <strong>Published Date: 02-August-2022</strong> <strong>DOI: </strong><strong>https://doi.org/10.5281/zenodo.6952792</strong> <strong>Paper Download Link (Source)</strong> <strong>https://www.paperpublications.org/upload/book/Achieving%20Fiscal%20Sustainability-02082022-4.pdf</strong>
Existing literature has examined a plethora of factors that can affect the effectiveness, performance or nature of fiscal policy in an economy. In this paper we build on the fundamental tenets of micro-economic models to examine the potential ways cryptocurrencies can affect the effectiveness of a countryâs fiscal policy. Our finding is that under the assumptions of an absence of uncertainties, perfectly competitive markets, household utility maximization, and usage of public money and cryptocurrency, the government purchases as well as the ability of the government to raise funds by issuing bonds and by taxation is decreasing in new investments in cryptocurrencies but increasing in the income earned from cryptocurrencies. We go further to discuss the factors that account for the sustained ability of cryptocurrencies to weaken the stateâs fiscal-policy capabilities and possible ways the effects of cryptocurrencies on the stateâs fiscal integrity can be mitigated.
Based on the scholarâs research on the influencing factors of local government debt, this paper argues that the local government financial resources, degree of decentralization and local government investment enthusiasm in local finance are the significant factors that influence the form of local government debt. This paper also chooses the panel data of Chinaâs 31 provinces (cities) except Hong Kong, Macao and Taiwan from 2010 to 2019, to analyze the influencing factors of local government debt scale and the relationship of local government debt scale in different regions and demonstrates the correctness of the hypothesis proposed in this paper. The analyze result shows that the local government financial resources significantly inhibit the growth of local government debt. The degree of local decentralization is an essential factor to enlarge the scale of local government debt. There is a significant positive correlation between the enthusiasm of local government investment and the scale of local government debt.
This dissertation consists of two independent essays on public economics. The first essay studies the consequences of fiscal decentralization on poverty and income inequalities. This essay describes the possible channels through which fiscal decentralization might affect poverty and income inequalities, and carries out an empirical analysis with data of a large number of countries at different stages of development, for the period 1971-2000. Fiscal decentralization is found to have significant effects on poverty and income inequalities. These findings are important because they suggest, contrary to the traditional public finance theory, that sub-national governments can play an important role in the reduction of poverty and income inequalities. The second essay studies the second best solution to the public expendituresâ problem in the presence of a proportional labor income tax. By allowing the tax base to vary with the taxpayersâ behavioral responses to taxation, we derive the âeffectiveâ budget constraint faced by the government, which describes the set of affordable combinations of public and private goods. We show that the optimal solution to the government problem corresponds to the point of tangency between the effective budget constraint and the highest attainable social indifference curve. The traditional normative prescription for public expenditures under a second-best scenario does not satisfy this condition, and therefore it provides a suboptimal solution. Finally, we use the same analytical framework in order to explain the flypaper effect, an empirical regularity that has for long challenged the conventional theory.
Decentralization of infrastructure responsibility to subnational governments and the immense needs of infrastructure financing argue for expanding subnational borrowing responsibly. India, Indonesia, the People's Republic of China, and the Philippines embarked on developing their subnational debt market at differing paces and progresses. The transition to market-based financing is path dependent, requiring sequencing of reforms. Moral hazard is inherent in subnational borrowing for both borrowers and lenders. Subnational borrowing also intertwines with the intergovernmental fiscal system, which prescribes the division of spending, revenues, and deficit financing among tiers of government. Linking borrowing to debt-service revenues and allowing fiscal space for subnational government borrowing are paramount. The challenges facing subnational governments from COVID-19 are similar to those from other macroeconomic shocks. A long-term view is required as to the allocation of fiscal space between sovereign and subsovereign. Financial transparency is key as markets need to digest comprehensive information to appropriately price risks.
Abstract In the last three decades, many Asian democracies have decentralized their political systems to promote the democratic, equal, and efficient distribution of national resources across regions. Nonetheless, most of these countries, including South Korea, are still in a stage of âpartial fiscal decentralization,â in which locally elected officials have spending authority, while a significant portion of their financing relies on transfers from the central government. This article argues that the decentralized distribution is significantly influenced by the partisan interests of central and local governments. The central government transfers more funds to local governments that their co-partisans govern, and local incumbents follow partisan policy priorities to obtain the allocation of available fiscal resources. This argument is strongly supported by the empirical analysis of subsidy transfers and regional social expenditures in South Korea from 2002 to 2015. First, we find that the central government in Korea transfers larger subsidies to politically aligned regions. Second, regional governments with larger subsidy transfers have higher levels of social expenditures. Third, governors or mayors affiliated with a progressive party spend significantly more on social welfare and education than do those affiliated with a conservative party.
Since the onset of the Great Recession, austerity has become more common at the national and local levels throughout the OECD. As states pass expenditure responsibilities down to the local level, this causes a shift toward mandatory spending at the local level which may undermine discretionary spending for social and physical infrastructure. We use Census of Government Finance data from 2012 for all county areas in the continental US to model the expenditure gap between current operations and capital investment, and show how this crowd out affects growth. Our structural equation models find fiscal decentralization has direct negative effects on local growth and indirect negative effects on growth by increasing the local current-capital expenditure gap. This local expenditure gap is larger where decentralization of spending responsibility is higher and state aid is lower, especially in places with greater need (poverty, older infrastructure, and rural areas). In contrast to the theoretical claims of fiscal efficiency, we find fiscal decentralization may be undermining local economic growth by increasing the gap between local current and capital expenditure. We argue that fiscal federalism (decentralization) is âbrokenâ in the US because states have structural incentives to shift fiscal responsibility downward to local government, and local governments face increased social and economic need, especially since the Great Recession.
From a public finance point of view, achieving sustainable development hinges on two critical factors: the subnational implementation of public policies and the efficient allocation of resources across regions through vertical intergovernmental transfers. We introduce a framework that links these two mechanisms for analyzing the impact of reallocating federal transfers in the presence of regional heterogeneity from development indicators, budget sizes, expenditure returns, and long-term structural factors. Our study focuses on the case of Mexico and its 32 states. Using an agent-based computational model, we estimate the development gaps that will remain by the year 2030, and characterize their sensitivity to changes in the statesâ budget sizes. Then, we estimate the optimal distribution of federal transfers to minimize these gaps. Crucially, these distributions depend on the specific development objectives set by the national government, and by various interdependencies between the heterogeneous qualities of the states. This work sheds new light on the complex problem of budgeting for the Sustainable Development Goals at the subnational level, and it is especially relevant for the study of fiscal decentralization from the expenditure point of view.
The study's main objective was assessing the practices and challenges of fiscal decentralization at Bedelle woreda, with particular reference to basic selected sectors (Education, Agriculture, Health, Water, and Road). According to the nature of this study, a descriptive research design with qualitative and quantitative methods was adopted. The population of the study was government employees working in selected sectors of Bedelle Woreda. The census sampling technique was used in this research because the study population was manageable. To this effect, 128 participants were selected using a census sampling size. Besides this, Woreda (District) Finance and Economic Development and Woreda Revenue Office Authority officials were purposely selected to conduct interviews. The data-gathering instruments were questionnaires, key informant interviews, and document analyses. Descriptive and inferential statistical techniques were used for data analysis. In descriptive using frequencies and percentages and inferential statistics, multiple linear regression was used to assess relationships between the independent variables (legal framework, revenue, expenditure, employee experience, employee training, management commitment, and fiscal transfers) and the dependent variable (fiscal decentralization). The findings show that internal revenue raising and utilization in the selected sectors was very low. Besides, lack of autonomy in expenditure decisions of sectors, insufficient capacity building, the extent of fiscal transfer, and financial resource were the major challenges in the study area. Overall, the regression analysis revealed that, Revenue raising (ÎČ = -0.164, p<0.05), Expenditure decision (ÎČ = 0.236, p<0.05), Employee experience (ÎČ = 0.525, p<0.05), and Commitment of management (ÎČ = 0.172, p<0.05), all have statistically significant and positive effect on fiscal decentralization. Based on the study's findings, it is recommended that existing legal frameworks be modified to enable the sectors to use their budget in line with their action plan to generate and utilize sufficient revenues. Special emphasis should be given to an employee's capacity building, independence of planning and budgeting, and clear autonomy of expenditure assignments. Inter-governmental fiscal relations should also be planned to reduce the horizontal imbalances observed at selected sectors of the woreda under study.
Examines the decentralized nature of the education finance system in Sudan, and explores potential ways to increase the equity and efficiency of public spending, by (1) reviewing the education sector, including its structure, management, and performance; (2) describing education finance in the context of decentralization, including the financing framework, public expenditures, and links to learning outcomes; and (3) suggesting some key policies to strengthen Sudanâs education finance system. The Sudanese Revolution of 2019 has created a unique opportunity to usher in transformative reforms that can significantly impact the goal of ensuring all Sudanese children have access to quality education. A very weak relationship exists between statesâ public spending per student and average scores in reading and mathematics on the 2017 National Learning Assessment (NLA) in grade 6. The discrepancy in test results reflects differences in how public education funding supports activities that will improve learning outcomes, such as teacher training, and learning materials, such as textbooks.
Presents evidence from seven country case studiesâSudan, Uganda, Indonesia, Colombia, Brazil, Bulgaria, and Chinaâon how intergovernmental fiscal transfers have strengthened education systems and improved education outcomes, exploring how these countries have used transfers to (1) provide adequate basic education funding; (2) narrow education inequalities; (3) increase efficiency; and (4) incentivize better performance from various actors in the education sector, drawing mostly on the evidence presented in the case studies, but also including examples from other countries, mostly high-income countries, where necessary with some principles for the design and implementation of effective transfers for education. The case study countries differ in their stages of economic development and the number and size of their subnational jurisdictions. Gross national income (GNI) per capita varies from US$590 in Sudan to over US$10,410 in China. Although all of the case study countries have decentralized, considerable variability exists in the size of the basic education systems their sub-national governments manage.
The unification of South Korea and North Korea is a plausible idea yet it requires a comprehensive preparation in advance. As a method to achieve fiscal efficiency in public services, decentralization theory1 is consistently applied. However, the current literature and political reality argue that decentralization does not always hold its efficiency. Therefore, this paper focuses on finding an ideal education finance model for post-unification Korea by studying how one countryâs academic/economic status is related to their education finance model. This paper conducts the OLS linear regression analysis with 40 OECD and its partner countriesâ information on GDP per capita, Gini Index, PISA mathematics score, and the form of education finance system. The main findings of this research are that the political and fiscal decentralization are different ideas, and fiscal decentralization does not always hold its efficiency as the decentralization theory states. Among the types of decentralization, the optimal education finance model for academic and economic improvement is deconcentration â which is a combination of fiscal centralization and political, or administrative, decentralization to empower regional autonomy.
Purpose This paper argues that decentralization reforms in Colombia, implemented since the 1980s, have led to the decentralization of political clientelism rather than its demise. Clientelism is a system of political and economic institutions that turns every local democracy into an extractive political institution. The authors theoretically demonstrate that an increase in public resources will increase corruption. Design/methodology/approach The authors develop and test a subnational public choice model, where clientelism in elections and corruption in public administration constitute a stable long-term institutional equilibrium. The model comprises two linked subgames: electoral tournament and corruption in public policy. The model makes two predictions that currently oppose predominant approaches: (1) increasing the severity of jail sentences to electoral crimes increases their price and the predominance of machine politics, instead of improving the quality of electoral tournaments and (2) increasing local governments' public finance increases clientelism in elections and corruption in public administration. Findings The authors find evidence in favor of the theoretical model of curse of public resources, using difference-in-differences estimation with a database 2016â17 of Colombia's 1,034 municipalities. This country is well-suited for our analysis because it has a long-term commitment to formal democratic processes (since 1958), while plagued by endemic corruption and clientelism problems. Originality/value (1) The theoretical approach is innovative and disruptive of current models on the problem, (2) the model builds upon the Colombian situation, a country with prominent corruption and political violence problems regardless of its relatively long-term commitment with free elections (since 1958) and (3) the theoretical discussion is tested using a comprehensive set of difference-in-differences estimations.
Abstract Local governance in developing countries demonstrates many problems related to financial sources and good governance of their finances. Local Self-Government (LSG) units in the Republic of North Macedonia are very small which results in a lack of capabilities to raise enough funds to offer delegated services. The local government in the Republic of North Macedonia centralizes almost all public finance. Local budgets depend heavily on state transfers and donations from the central budget. The lack of funds remained a crucial problem even though there were some attempts for the decentralization process. Practically, governments in many of the local governments in North Macedonia could not secure their resources. In this way, they could come with specific charges, but all taxes are decided by the central government. The practice showed that local governments before borrowing needs to be approved by the Ministry of Finance. The Republic of North Macedonia as a potential candidate to join the European Union should make several changes regarding the legislation during the process of accession to benefit from being a small candidate country. The main aim of this paper is to investigate alternative financial sources such are Municipal Bonds, Partnership Sukuk securities, and PPP. Unfortunately, many financial alternatives have not been able to be implemented due to failures in reforms and good financial governance. But they remain an open opportunity for developing a local government in the future.
Abstract A key challenge for democratizing local government is the extent to which local policy is responsive and accountable to local votersâ preferences. The goal of this paper is to assess the potential relevance of this thesis in the case of the Islamic Republic of Iran (IRI) by focusing on the fiscal dimensions of elected local government first established in 1999. In this paper, I present descriptive data and empirical analysis to provide a comprehensive picture of fiscal decentralization and municipal finances under the IRI, which up till now has been a âblack box.â To peer inside, I present the results of a unique dataset on almost ninety cities gathered over an eightâyear period covering the first phase of decentralization (1998â2006). I find that elected municipalities in Iran possess limited fiscal and legal autonomy on both the revenue and expenditure sides. The findings provide support for the broader thesis that the structure of local government finance has acted to thwart the Islamic reformistsâ project of local democratization and strengthening local government accountability.