The widespread adoption of fiscal decentralization laws during the past 25 years can be mostly tracked to economic efficiency gains and nationâbuilding objectives. Subnational governments (SNGs) in industrialized countries account for about twice the share of total government expenditures as in developing countries. Transition countries also assign more expenditure responsibilities to SNGs than do the developing countries. There has been little growth in the SNG expenditure or tax shares over the past three decades. We confirm the basic hypotheses that the SNG expenditure share is significantly higher in countries with higher incomes, larger populations, and a lower degree of corruption.
This paper discusses the current situation of the local government bond in Japan, and consideration and behavior of regional banks as lenders to local governments through questionnaire surveys and interviews. We also discuss reform of the local government bond system and the decentralization of the local finance.
In the process of economic integration regional production structures are about to change. Several studies analysed already trends of regional specialization in the European Union and attempted to figure out determinants of observed changes. In this context, up to date the role of the public sector and especially the impact of different fiscal designs as determinants of the change in production structures have been left aside. Advantages and shortcomings of decentralized government organization have been largely discussed theoretically within the last decades. Several empirical studies attempted to examine the impact of decentralization on national performance, e.g. economic growth and fiscal stability. This paper aims at linking these two subjects and analyzes the empirical relationship between regional specialization and fiscal decentralization for a panel of 15 Member States of the European Union, controlling for regional and other institutional determinants. The analysis shows that rather autonomous regions tend to diverse their production structure in order to insure against adverse supply shocks.
The Nicaraguan Autonomous School Programme is notable among the growing number of school governance decentralization reforms in the Americas in the degree of control given to parents, especially in decisions regarding the allocation of school resources. Much of schoolsâ discretionary spending was accumulated through various school charges. This paper analyses rare schoolâlevel budget data to determine the proportion of resources that derived from parental contributions and other schoolâbased commercial activity. We find the contributions to be significant, highly varied, and correlated with income. The results have implications for many decentralization reforms that encourage local contributions as part of both their financing and accountability strategies.
This paper attempts to trace and find evidence for the linkages between the quality of governance, and development at the local level since the adoption of the fiscal decentralization policy in the Philippines in 1991. The concern since then over the links has been prompted by the observed persistent imbalances in local development - across and within regions - which many believe is due to the less than prudent exercise of the devolved powers and responsibilities - hence, low quality of local governance. To be sure, the decentralization has led to not a few innovations in local service delivery and financing, and in increased people's participation in local civic activities. However, the spread of innovation has been slow and there has been less than genuine participation in the mandated local special bodies. The uneven quality of local governance thus may have contributed to imbalanced regional growth. Evidence also indicate that the initial level of economic conditions determine the acceptable quality of local governance, which explains why certain poor areas remain in the vicious circle of penury and misgovernance. To help improve the quality of local governance, some policy inputs are suggested.
Matthias Zana Naab, PhDUniversity of Pittsburgh, 2005This study examines decentralization and democratic local governance in Ghana by assessing the effectiveness of the performance of District Assemblies (DAs) in order to better understand how DAs plan, implement, and manage development activities in close partnership with communities. It applied the proposition that decentralization and democratic local governance are expected to result in more efficient, effective, sustainable, and equitable outcomes through the hypotheses that decentralization results in more effective local government; more responsive local government; local government that is democratic, more accountable, and more participatory; local people having more positive perceptions of government; and local governments providing high quality services that respond to local demands.Engaging in both exploratory and explanatory research, this study identifies important variables and relationships as well as plausible causal networks that shaped local government and governance in Ghana. Using an inductive and theory-building design, it explains a model of decentralized governance and highlights potential partnership arrangements for the effective engagement of Community-Based Organizations (CBOs) in complementing the efforts of local governments.The results of decentralization, interpreted through questionnaires as well as stories and conversations with local people in two Ghanaian District Assemblies, was a combination of success and failure. In the two case study districts, the assemblies have resulted in a slight increase in development projects and services. However, the poor level of local revenue mobilization has limited the ability of the assemblies to finance significant development projects in their districts. Consequently, this has forced the assemblies to depend on the District Assemblies' Common Fund as well as on external donor funded projects and programs and on local people in self-help projects. The analysis of revenue and expenditure patterns in the two districts showed that per capita development spending was low, while recurrent expenditure and spending on local government infrastructure was high. District assemblies and CBOs often remain unwilling partners, and both are faced with serious capacity constraints which militate against structuring effective partnerships for service delivery. The successful implementation of decentralization depends on the degree to which national political leaders are committed to decentralization, and the ability and willingness of the national bureaucracy to facilitate and support decentralized development. Therefore, the ongoing process of decentralization in Ghana must be seen in the broader context of a deliberate redirection and change in the internal regulatory framework of the state.
In the last 40 years, in public finance the examination of spatial aspects of federalism and intergovernmental fiscal relations was dominated by allocative and distributional issues. Modern growth theory and complementary approaches lead to a shift in the research perspective. Against this background the paper discusses how the findings of modern growth theory can affect the design of intergovernmental fiscal relations. The results of this analysis can be summarized as follows: (1) the existence of a geographically different growth dynamic provides an additional justification for a decentralization of political competences. (2) To cover more exactly the regional economic backward and forward linkages, especially local government authorities should intensify their cooperative behavior. (3) From the perspective of economic growth, the equalizing effect of horizontal transfers between decentralized jurisdictions should be limited.
This article examines the effect of party composition of government on the centralization of budgeting institutions in Hungary, Poland, the Czech Republic and Bulgaria in 1989-1999, and assesses the impact of the centralization of budgeting institutions on the capacity of these countries to meet the fiscal deficit requirement for the European Economic and Monetary Union (EMU) membership. The article finds that centralization of budgeting institutions through delegation to a strong finance minister and/or prime minister is likely to occur in one-party governments or coalition governments composed of parties which expect to fight repeated elections together, with effective punishment mechanisms. The article finds that countries with centralized budgeting institutions are likely to be more capable of meeting the EMU deficit requirement than countries with decentralized institutions.
Decentralization of government with property tax financing is the standard recipe for public sector reform. Fiscal competition is assumed to stimulate efficiency and hold down the tax level. Property taxation offers additional incentives for efficiency. We study the incentive mechanisms involved using data for decentralized governments and in a setting where they can choose to have property taxation or not. The empirical analysis addresses whether fiscal competition and political control problems influence the choice of having property taxation. The results indicate that both incentive mechanisms are relevant and consequently support the standard advice. Fiscal competition generates a distinct geographic pattern in local taxation and political fragmentation seems to motivate property taxation to control common pool problems. The main methodological challenge handled concerns spatial interaction with discrete choice.
Decentralization in Indonesia was introduced institutionally in 2001, with a democratization drive promoted by international donors and by the intention of the new government to clear away the centralistic image of Soeharto. Decentralization has had some effects on regional economies and on local government administration. Compared to the period before decentralization, the share of GRDP and local government finance has increased in Java, though investment and bank borrowing have expanded to the outer islands. In qualitative aspects, decentralization has transferred not only administrative authority but also many new vested interests from the center to regions. Local governments have become more extensive economic actors in regional economies. Regional economic actors now compete actively for such vested interests and have missed the opportunity to create market-friendly regional economies. The government sector should not be a mere rent-seeking economic actor, but should play a role as a facilitator promoting private sector activities in regional economies.
This dissertation explores the politics of fiscal decentralization in comparative perspective. Case studies of Argentina and Spain are used to provide insights into the way that the distribution of institutional and economic resources in multitiered polities shapes the extent to which the policy of transferring revenue and revenue authority to subnational governments can be exploited for political gain. This approach draws attention to the political conditions that inhibit the coordination of fiscal reform efforts between the different levels of government and perpetuate the financing of subnational spending with revenue collected by the national government. This political context undermines national fiscal adjustment efforts and leads to economic catastrophes such as those experienced in Argentina throughout the last two decades. Specifically, this study uses statistical analyses and empirical institutional theory to show how patterns of territorial representation and bargaining strategies hindered revenue decentralization in Argentina but advanced it in Spain.The research suggests, first, coalition-building goals drive national executives in Argentina to reach out legislators of the opposition by means of allocating larger shares of federal transfers to the provinces the latter belong to. However, all else equal, legislatively overrepresented, i.e. economically marginal and sparsely populated, provinces will be targeted first. Second, the increasing role of regionalist parties in Spanish national politics and their acceptance in joint-policy mechanisms tilts the allocation of chosen federal transfers slightly in favor of economically developed and densely populated autonomous communities, which are generally governed by regionalist forces. Third, whereas Argentine subnational interests are "locked-in" at the Senate level and intergovernmental negotiations are conducted bilaterally, open-ended institutional arrangements and a relatively impotent senate in Spain boosted the redressing of regional concerns through informal intergovernmental fora and increasing multilateral collaboration Fourth, such differences in patterns of institutional representation and bargaining strategies explain the paucity of fiscal decentralization in Argentina and its relative progress in Spain.
In the literature on the subject of economy there are three functions of public finance \ndescribed: stabilazing, redistributing and allocating. Effectiveness of realization of the abovementioned \nfunctions depends to a large extent on the political system of a given country, \nespecially on the degree to which it is decentralized. In the article the author embarks on an \nattempt to identify the advantages and disadvantages of decentralization of particular public \nfinance functions and in effect to show which of the functions can be more effectively realized \nby the central authorities and which of them can be decentralized that is transfered to the \nlocal authorities.
O trabalho discute, do ponto de vista economico, as vantagens e desvantagens que diferentes graus de centralizacao/descentralizacao fiscal e tributaria apresentam para um crescimento economico equilibrado. Para tanto, sao apresentadas as posicoes defendidas pelos centralistas e descentralistas, autores que, baseados nos resultados de suas pesquisas, tendem a se aproximar de um ou de outro polo, no continuum do sistema politico federalista, os primeiros sustentando a concentracao do poder de tributar e de gastar nas maos do governo central, e os ultimos defendendo a devolucao desses poderes ao nivel de governo o mais distante possivel do centro. O trabalho comeca apresentando as relacoes entre o Federalismo e as estruturas tributaria e fiscal; em seguida coloca a polemica entre as duas correntes mencionadas, concluindo com a indicacao dos temas de uma agenda de pesquisa voltada para o estabelecimento de uma estrutura fiscal e tributaria adequada aos paises em desenvolvimento, uma vez que muito da literatura sobre o tema esta voltada para os problemas dos paises desenvolvidos.Abstract This paper provides a discussion, in economic grounds, of the advantages and disadvantages that different degrees of fiscal and tax centralization/decentralization pose towards achieving a balanced economic growth. Accordingly, it introduces arguments and contentions of both centralist and decentralist authors. Based on their research outcomes they reveal a tendency towards a polarized position within the continuum of the political system of federalism. Whereas the former group sustains the concentration of taxation and spending powers at the federal level, the latter advocates the devolution of such powers to the level of government the most afar from the center. The paper starts presenting the relationships between Federalism and fiscal and tax structures; then it analyses the arguments posed by members of the two streams of thought and concludes proposing specific themes to compose a discussion agenda devised towards the institution of fiscal and tax structures specifically designed to fulfill particular characteristics of developing countries, given that most of the literature is based on the experience of developed countries. Key words: Public goods. Public finance. State and local taxation. State and local budget and expenditures. Intergovernmental relations. Federalism
This paper aims at analyzing regional development in Brazil regarding its financial conditions. It departs from the features of the federalism and decentralization in Brazil, as well as the state and local expenditures. We intends to investigate the role of the federalism and decentralization after the recentralization of taxes and budget in Brazilian economy. Conclusions highlight the importance of financial sector as one of the influential aspects of regional imbalances in Brazil.
This paper estimates the contributions of the strength of fiscal decentralization and the local preferential policies to the difference performances of private enterprises with the data from Zhejiang and Shanxi provinces.Our main discoveries are: the local governments which are differentiated by fiscal decentralization have contributions to the performance of the local private enterprises,but not so remarkable as expected.In the transition of local government's policies,tax and financing policies are more important.This conclusion indicates that an efficient executive system which can guarantee the contracts between government and enterprises is more practical than the preferential policy itself.
The world is experiencing dramatic fiscal reconstruction in the socialist and (former) socialist countries and of continuing and fascinating evolution of government structure elsewhere. Being one of the fastest growing economies over the past nearly three decades, China seems deeply embracing this global mantra of power devolution in her effort to energize local economy that was suffocated in the highly constricted state-planning system. The literature of the Chinese central-local studies suggests that fiscal decentralization from the central government to provincial governments is a key institutional factor to explain Chinese economic success. However, the literature misses various lower levels of government in China. Has the fiscal power been eventually trickled down to them? This is the question addressed in this project. This project makes several contributions to the thriving Chinese central-local study. It brings back the missing local governments in the intergovernmental debate. By linking various local governments with the national government, the findings in this project help to draw a more comprehensive and holistic picture of the intergovernmental fiscal relations in China. Such a study on the evolution of fiscal structure among local governments also adds knowledge to understand the broad economic and administrative transformation in contemporary China. Using the latest datasets of public finance, this project performs a series of statistical analysis to understand if fiscal decentralization has taken place to each level of Chineselocal governments in the reform era. This project also tests the factors that have been widely identified in the classical welfare theory as explanative factors for the fiscal arrangement at different levels of local government. This project finds out that fiscal decentralization fails to capture the main trend of the intergovernmental fiscal relations at various Chinese local governments. Instead, there has been a rather consistent pattern of fiscal centralization across those local governments during the 1990s and the early 2000s.
This paper argues that the fiscal risks in China are caused and accumulated by institutional deficiency, imperfection and unequilibrium, and hence institutional explanatory factors should be considered as endogenous variables to quantify fiscal risks. Four variables, the rate of nationalization (GYHL), the rate of marketization (SCH), the rate of public finance decentralization (CZFQ) and the rate of transaction (JYFY) are employed to explain fiscal risks (CZFX). Through stepwise regression, we find that GYHL and CZFQ impose significant effects on CZFX, and there is a negative relationship between GYHL and CZFX. Based on empirical research, the conclusions can be stated as follows: not only should we carry out SOEs reform well on micro-level, but also we should control the range and limits of public finance decentralization in order to avoid and diversify fiscal risks to some extent.
This paper is devoted to discuss some European evidence of decentralized public finance, as they may prove useful to give some suggestions for implementing the Italian current proposals of more fiscal decentralization. Except than in Nordic countries, new settlements of fiscal decentralization are planned or underway almost everywhere in main European countries, and not just in Italy. A common trend may be envisaged toward an increase of sub-national functions, while the way to more fiscal autonomy seems more uncertain. A prevailing mixed model (decentralization with scattered elements of political federalism) seems to emerge. However expenditure overlaps are so widespread to cancel out the popular idea that functions (exclusive or concurrent) may be allocated among government layers in a clear-cut way. In the average of EU15 countries, the financing of sub-national governments comes still largely from national block transfers highly perequating. A trade-off seems to exist, not easy to be removed, between the degree of decentralization and the room of manoeuvre of decentralized taxes. Following the European experiences, more autonomous financing might be obtained mainly by enlarging sub-national governmentsâ rate-freedom with respect to increased amount of national taxes (personal income tax and VAT) to be shared. Perequating systems widely differ among countries. Some recent reforms may however give some useful guidelines for a dualistic country as Italy. Transfers should be of vertical type, linked also to the regional needs and at least for a part targeted to specific aims. Fiscal decentralization may induce a decrease in overall budget responsibility. To control for this, international experience suggests that fiscal rules might be usefully integrated by formal cooperation between central and sub-national governments. Codici Jel H70, H72, H74, H77 Parole chiave:Federalismo fiscale; Italia; Europa Indirizzi E-mail : eunice@unipv.it, gandull@csb-scpo.unige.it
While, politically speaking, China has a centralized government structure with strong top-down mandates, under the countryâs current fiscal system, local governments are responsible for providing most local public goods and services. Large differences in economic structures and revenue bases exist, however, causing the implicit tax rate and fiscal burdens in support of local government functions to vary significantly across jurisdictions. Regions initially endowed with a broader nonfarm tax base do not need to rely heavily on new and existing firms to finance public goods provision, which creates a healthy investment environment in support of nonfarm sector growth. In contrast, local governments in regions where agriculture is the major economic activity spend the majority of their resources on their own operating costs, leaving little for public investment. Because of the relatively high transaction costs associated with collecting taxes from the agricultural sector, local governments tend to levy the existing nonfarm sector heavily, thereby greatly inhibiting its growth. As a result, regional differences in economic structures and fiscal dependent burdens may translate into widening gaps in equality. Authors' Abstract