Twelve years into the implementation of the Local Government Code of 1991, it is but opportune to assess how the key features of this landmark legislation has contributed to (or detracted from) achieving the balance between local autonomy and accountability. The literature on fiscal decentralization suggests that these two goals are not incompatible. In fact, real autonomy (in the sense of subnational governments being able to link their spending decisions with their revenue/tax decisions) promotes fiscal responsibility. In the context of the ongoing debate in the Philippines, however, local autonomy has been equated (by many LGUs officials) with the independence of LGUs from central government interference. As such, LGU officials have focused more on securing even higher levels of block grants in order to address the widely perceived vertical fiscal imbalance. However, closer scrutiny of the problem indicates that greater tax decentralization, coupled with a well-designed intergovernmental transfer system that includes elements of fiscal equalization and categorical grants conditional on the achievement of minimum service standards, would better enhance the gains that are forthcoming from the decentralization process while minimizing the risks of macro-instability.
By employing the methodology developed by the OECD the paper assesses the degree of revenue decentralization in Russia in comparison with other post-communist European countries. The paper provides theoretical arguments underpinning fiscal decentralization, analyzes the composition of subnational government revenues, the level of regional and local tax autonomy and types of intergovernmental fiscal transfers. The analysis presents the composition of revenues depending on the degree of subnational and local government control. In comparison with other transition countries fiscal decentralization in Russia is relatively low. It is concluded that Russia's public finance reform has not progressed towards providing greater fiscal autonomy for regional and local governments.
School finance drives policy and practice in public education, yet most citizens and some practitioners know very little about how their schools are funded. The purpose of this article is to address the financial issues related to urban schools and the challenge of balancing expectations of higher levels of education with the values of equity, efficiency, and economic growth. Section 1 discusses the social context of school finance in the United States, including urban education issues. This section will discuss equity issues in the context of the history of school finance litigation in the United States. Section 1 will also show how the school funds are spent. Section 2 will discuss traditional funding structures and state funding policies. Section 3 will discuss decentralization and site-based budgeting, including the use of charters, vouchers, and contracts. The conclusion will explore how restructuring school budgeting can improve instruction and student performance.
For a variety of reasons, many developing countries especially since the 1990s have embarked on programmes of democratic decentralization that are aimed at creating local self-governing systems that are democratic, relatively autonomous and effective in delivering services.Finding independent sources of financing for these emerging, locally based organs of governance has been one of the central challenges that confront these efforts in most countries.The literature suggests that sources of independent local government revenue are few in poor countries.As a result, most countries design decentralization programmes that depend heavily on intergovernmental transfers from national to local governments.Given widespread poverty that exists in most developing countries, this is a crucial strategy.However, the problem is that many central governments are engulfed in a systemic financial crisis and are desperately exploring strategies for reducing their expenditure commitments.One outcome is that revenue transfers are often irregular or fall much below the levels of expenditure decentralization, leading to serious fiscal gaps at the local level.Even where transfers are adequate and reliable, a fiscal regime which compels local actors to depend so heavily on central financial arrangements for practically all of their expenditure requirements undermines the development of lateral (local state-citizen) rather than vertical (central-local state) relations within the state, with serious implications for public participation and effective accountability.In the meantime, cities of developing countries continue to grow phenomenally in a way that makes conventional strategies for financing urban infrastructures unsustainable.Many analysts view this rapid urbanization as fatally aggravating the problem of urban/local governance.This paper suggests a different and more positive view.It reviews the literature which concedes that property taxation remains largely untapped and might indeed be progressive in developing countries.This literature highlights mainly the technical constraints to progress-assessment, valuation and collection.In contrast, this paper contends that the tax suffers from a combination of political and technical factors where the latter are dependent not independent variables.The paper undertakes an analysis of the key stakeholders in implementing successful property taxation policies based on research conducted in four countries-India, Nigeria, Republic of South Africa and Zimbabwe in the early 1990s.The paper suggests that willingness, opportunity and capacity remain critical factors and demonstrates how opposition to the tax can be overcome by strategic partnerships between central and local governments, public and private and domestic and external actors.
This study attempts to provide some applications for local government decentralization under the circumstance of public reform. Traditionally the innovation of government focused on to develop some new techniques and criteria but it is more important thing to divide the power between central and local government for the developed national system. Although the need for decentralization of government had prevailed in Korea for long time, we are witness of the unchanged system. In spite of its desirability of decentralization of structure, staffing and financing etc., changing for decentralization is not easy. Now I think it is necessary we have to prepare the way of decentralization by way of compariso with the nations which had overcame the diffioulties for decentralization. Italy is an advanced one had achieved decentralization with lots of innate d especially its decentralized regional development strategy may apply to us. Last I'd like to say that decentralization itself is political change. So before advance of political system, decentralization can not go up anymore.
Abstract Besides decentralization to executive agencies and social organizations, public management reform involves devolution to sub-national units of activities and the corresponding fiscal resources to finance them. It involves also making public managers more autonomous and more accountable. In synthesis, decentralization–delegating authority to lower levels–is crucial to managerial public administration. Decentralization is a public management strategy, but devolution is a political decision with managerial consequences. Decentralization is often decided top-down and is a strategy for increasing the head-offices’ capacity to achieve proposed objectives, but devolution is usually a response to demands for more local or regional autonomy to which government officials in the central government reluctantly accede.
This paper studies the general equilibrium implications of two types of educa-tion policy in an overlapping generations growth model with second-best policy. We examine vouchers, which augment inherited private education spending, and public investment on economy-wide human capital, that provides economy-wide externalities to individual human capital accumulation. The government deter-mines jointly the allocation of tax revenues among the two types of education policy and tax policy, subject to the competitive decentralized equilibrium. Using plausible parameter values it is shown that it is socially optimal to spend heavily on economy-wide human capital accumulation and finance government spending by a modest proportional tax on initial human capital and a low tax on inherited private education expenditures.
As authority over public expenditures has shifted from central to provincial and local governments in countries around the world over the last two decades, prevailing approaches to the study of decentralization in welfare economics and public choice from the 1970s and 1980s have given way to new political economy approaches. The first generation of theories envisioned central and lower-level governments as distinct sovereigns within their own spheres of activity. Recognizing a more complex reality, the political economy literature is rethinking the notion of sovereignty in multi-tiered systems. Motivated by recent difficulties with fiscal decentralization and fiscal discipline, this essay rethinks the notion of fiscal sovereignty, viewing it as an evolving set of beliefs in the context of a dynamic game of incomplete information played between central and subnational governments. Provincial or local governments, along with their creditors and voters, attempt to assess the credibility of the central government's commitment to abide by pre-specified intergovernmental fiscal arrangements. When higher-level governments dominate the field of taxation and take on heavy co-financing obligations—as central governments do in virtually all newly decentralizing countries—the central government's commitment not to bail out subnational governments in the event of debt-servicing crises is not credible. In other words, subnational governments without significant tax autonomy will not be viewed as sovereign borrowers, and this has important implications for their fiscal behavior.
Wallace Oates is one of the most important scholars in both environmental economics and public finance and this new volume of his essays brings together his recent research in both these areas, covering theory, research and policy. The first half of the book includes papers on the political economy of environmental policy, the analysis of environmental regulation and environmental federalism. The second half deals with fiscal and regulatory competition, state and local government finance and fiscal federalism. This new collection will be essential reading for scholars and students in both environmental economics and public finance.
Wallace Oates is one of the most important scholars in both environmental economics and public finance and this new volume of his essays brings together his recent research in both these areas, covering theory, research and policy. The first half of the book includes papers on the political economy of environmental policy, the analysis of environmental regulation and environmental federalism. The second half deals with fiscal and regulatory competition, state and local government finance and fiscal federalism. This new collection will be essential reading for scholars and students in both environmental economics and public finance.
This paper concerns redistribution and public good provision in an economic federation with two levels of government: a local government in each locality and a (first mover) central government. Each locality is characterized by two ability-types, and the ability-distribution differs across localities. The central government redistributes via a nonlinear income tax and a lump-sum transfer to each local government, while the local governments use proportional income taxes and provide local public goods. We show how the redistributive role of taxation is combined with a corrective role, and how the central government can implement the second best resource allocation. Copyright 2008 Blackwell Publishing, Inc..
This study aims at assessing the performance of local government in Palestine in regard to fiscal and administrative decentralization. Data was gathered from the Ministry of Local Government, Ministry of Finance and a questionnaire was sent to 12 municipalities' key officials. It was found that the government is organized into the central government headed by the president, the cabinet, the governorates, mayors and village councils. The main functions of the local governments are to provide the necessary needed services. It was found that there is a degree of decentralization in providing the intended services as the functions of each level is clearly defined by the law, even though there is an overlapping amongst these functions due to the current situation instability The study explains several aspects including organization of the local government, decision making process, functional responsibilities, partnership among local government and the performance of these partnerships, employment, training programs, the most urgent issues regarding decentralization process, local government finances, financial standing of municipalities, relationship between central and local governments, and decentralization reforms under preparation, The study ends up with conclusions and recommendations. تهدف هذه الدراسة إلى تقييم أداء الهيئات المحلية في فلسطين فيما يتعلق باللامركزية الإدارية والماليـة. وقد تم جمع البيانات اللازمة للدراسة من وزارة الحكم المحلي ووزارة المالية، إضافة الى استبانة كانت قد أرسلت إلى 12 مسئولاً من مسئولي 12 بلدية. وتبين من البحث أن التنظيم الإداري للحكومة يتكون من الحكومة المركزية والمحافظات والبلديات والمجالس القروية. ووجد أن وظائف الهيئات المحلية تتركز في تقديم الخدمات الأساسية للمواطنين. وتبين أن لدى هذه الهيئات درجة كبيرة من اللامركزية في تقديمها لهذه الخدمات، لأن وظائف هذه الهيئات محددة بشكل واضح في قانون الحكم المحلي الفلسطيني، إلا أن هناك بعض التداخل في بعض الصلاحيات نتيجة للظروف الحالية. وأوضحت الدراسة العديد من القضايا الخاصة باللامركزية المالية والإدارية منها: التنظيم الإداري للهيئات المحلية، وعملية اتخاذ القرارات، والمسئوليات الوظيفية، والتعاون بين الهيئات المحلية في تقديم الخدمات، القوى العاملة في الهيئات المحلية والتدريب والحوافز، والقضايا الملحة فيما يتعلق باللامركزية، وتمويل الهيئات المحلية، والأوضاع المالية لهذه الهيئات وعلاقاتها بالحكومة المركزية، والإصلاحات الجارية الخاصة باللامركزية. وانتهت الدراسة بالخلاصة وعدد من التوصيات.
Decentralized countries around the world use different institutional set-ups to assure that the system of local government finances achieves the objectives sought by the public sector through the decentralized delivery of public services. In many centralized countries, the Ministry of Local Government is tasked with the exclusive responsibility to monitor and coordinate all aspects of intergovernmental relations, including local government finances. While the Ministry of Local Government generally also plays a role in more decentralized countries, it is not unusual for broad-based or inter-ministerial commissions to be tasked with tracking and considering local government finance issues in more decentralized countries. In contrast, other decentralized countries rely more heavily on local government associations or even the legislative branch to monitor and analyze the system of local government finances and to represent local government interests at the national level to assure a balanced system of intergovernmental relations. Finally, there are a small number of decentralized countries around the world that lack a formal intergovernmental mechanism to coordinate local government finance issues altogether.
Abstract: The past two decades have witnessed numerous attempts in developing countries at institutionalizing decentralization. Political leaders tended, before then, to believe that centralized planning was the key to economic growth and development. Ghana has not been excluded from this wave towards the transfer of power, competences, resources and functions from the centre to local levels of government. While Ghana has achieved significant political and administrative decentralization as well as decentralized planning, fiscal decentralization has been the unyielding component of the process. This paper examines the desirability, or otherwise, of fiscal decentralization in the context of funding arrangements. It uses the funding regime model as a basis for analysing how regulatory provisions, political and economic factors and practices, determine financial capacity of sub‐national governments. Evidence in the paper leads to the conclusion that sub‐national governments in Ghana do not support fiscal autonomy. They, instead, prefer being served and financed by the central government.
Japan is stuck between lots of rocks and several hard places. It confronts the escalating costs of the world's most rapid pace of ageing with a low and declining birthrate and virtually no support for mass immigration. Moreover, the country faces these costs while severely handicapped by a public debt 1.5 times its GDP plus dramatic declines in the high rate of savings that has hitherto financed it. In addition to all this, the poorly performing economy is in its fourth year of deflation with little hope of producing a recovery in tax revenues. Indeed, deflation and minimal economic growth have eroded national income- tax revenues to their lowest level since the collapse of the bubble economy.
If the political climate is stable, local elections in Croatia take place every four years. Budgets are planned for three years, while strategic development programmes cover periods of five to ten years. Technically, the political, financial and developmental programming cycles can be matched, and implementation of the programmes ensured. However, political programmes are generally vague, budgets are every so often fictive and revised mid year and development programmes grow into visionary shopping lists. Reality shows that programmes and plans are elaborated, presented in public and then neatly put into drawers. In the aftermath, local politicians are concerned mainly about the financing flows and this is what they are usually fighting for at council meetings and in various ministries. Regularly, local administration proceeds according to the wishes of the political decision makers, without referring to any program in the end. Consequently, political accountability is lacking, fiscal management is not transparent and development is lagging behind. The main aim of this paper is to show how strategic development programmes, budgetary plans and political programmes can be linked in the Croatian socio-economic and institutional environment. Also, in line with the initiated process of decentralization in Croatia, local governments have to improve their fiscal management in order to be able to take over new functions and responsibilities. Since by now a number of local development programmes exist in Croatia, where a participatory and strategic development planning approach was applied, an analysis of the political programmes, local budgets and development programmes can be done. The purpose of this research is to demonstrate that if local governments better understood the interdependencies between these three segments, they could create reference points for their actions visible in their programmes and budgets. In this way a platform could be created to enhance the political accountability, improve fiscal capacity and fulfil developmental goals in line with real needs and potentials of the local population.
In many countries fiscal decentralization characterizes the relationship among different levels of government. In those countries, local authorities have the prerogative to tax their constituencies. However, fiscal decentralization is seldom balanced in terms of tax and expenditure assignments. In order to equalize tax capacities, to internalize spillovers or to achieve national policy objectives, central governments often provide transfers to lower levels of government. These transfers may affect the incentives to manage or to improve fiscal performance. Specifically, according to Litvack, Ahmad and Bird (1998), such transfers may induce low `tax effort' in the regions. The purpose of this paper is to investigate theoretically and empirically this relationship between intergovernmental transfers and local tax effort. An initial problem to deal with is the definition of `tax effort' in itself. First, one can associate tax effort to high tax rates. Smart (1998) asserted that such association is inadequate. Second, one can measure tax effort using actual tax revenues or the difference between actual the predicted value of tax revenues. This approach has been mainly adopted by the empirical literature on the relationship between intergovernmental transfers and local tax effort [Baretti, Huber and Lichtblau (2000), Von Hagen and Hepp (2000), Jha, Mohanty, Chattergee and Chitkara (1999), Sagbas (2001)]. Although tax revenue is an accurate and observable variable, still one can hardly say that it is a good estimate of tax effort. The reason is for a given region in a given time period tax revenue is affected by many potential variables outside the control of local governments (like idiosyncratic shocks to some specific tax bases) which are seldom well controlled for in estimates of tax capacity. In practice local tax effort encompasses a broad set of actions. One of them is clearly the battle against tax evasion. In spite of its importance, this problem has been only recently addressed by the local public finance literature. Bordignon, Manasse and Tabellini (1996), presented a model where a local government exerts costless effort to catch tax evader workers and they showed how intergovernmental transfers affect tax enforcement. The drawback of this model is that, in reality, tax enforcement is not costless and the cost depends upon other variables chosen by local authorities, like the efficiency of the local tax administration. Although Prud'homme (1995) and Tanzi (1996) have informally signaled the possible inefficiencies of the local tax administrations, this feature has not been raised by the theoretical or the empirical literature. The purpose of this paper is precisely to incorporate such dimension in the assessment of the relationship between intergovernmental transfers and local tax effort. The theoretical framework assumes that in each region there is one representative habitant and a local government. The habitant posses a low or a high-valued property. The local government maximizes tax revenues. In a first period, the local government invests resources to improve the efficiency of the tax administration or to lobby the central government in order to obtain discretionary transfers. This decision is affected by the political cost of reforming the tax administration and on the ability of the local government to negotiate with the central government. Thus, in our model, intergovernmental transfers are endogenous and simultaneously determined with the reform of the local tax system. In a second period, the local government sets the property tax schedule. But, as the local government is unable to observe the value of the property, it has to rely on the habitant announcing this value. Finally, in the third period, the local government decides to enforce the tax law by randomly auditing such announcement. If the habitant is discovered having misreported, the local government sets the corresponding property tax and imposes a penalty. We assume that audit is perfect but costly; the cost depending on the efficiency of the local tax administration. We solve the model backwards. As the local government cannot commit to the auditing probability when it designs its tax policy, the equilibrium of the audit-report game is in mixed strategies, with auditing and tax evasion. Then we find the optimal tax schedule. In order to reduce the stake for tax evasion, the local government distorts downwardly the high-valued property tax. Finally, we solve for the decision of the local government regarding how much resources to invest for improving the efficiency of the tax administration. We find that this decision is negatively associated with the domestic political costs and positively with the ability to negotiate with the Federal Government. The predictions of the model are empirically tested using data for Argentina. The theory suggests a two-step approach. In a first stage we run a probit estimation where the probability of a certain province to reform its tax system (or receiving discretionary transfers) in a given year will be correlated with domestic political variables (e.g. divided government) and also with variables describing its bargaining power vis a vis the federal authorities (e.g. political representation at the National Congress, political party of the President vis a vis that of the Governor). In a second stage, we include this exogenous instrument of tax reform in a regression where the evolution of actual provincial tax receipts are regressed against this variable plus other controls like population, density, provincial income distribution and production structure. Notice that this two stage empirical approach allow us to deal with a frequent problem encountered in the empirical literature given by the endogeneity bias affecting some of the variables of interest, like federal transfers (e.g. Jha, Mohanty, Chattergee and Chitkara (1999), Sagbas (2001)).
The Baltic countries’ local governments have been functioned during the last decade in a permanently changing environment. Like other transition countries, they inherited from the past extremely centralized administrative system. Along with radical reforms, administrative system was decentralized and various functions were devolved from central to lower levels of government. Despite that, municipalities are still fiscally strongly dependent from central authorities. Often their fiscal capacity is not adequate to act in accordance with functions stipulated by laws. Many local governments’ revenues from taxes and user-charges are insufficient to finance efficiently their expenditures. Disparities in municipalities’ fiscal situation are correlated with unbalanced regional growth, social degradation in the low-income regions and growing differentiation by municipalities’ residents on access to education and healthcare. Membership of the European Union brings new tasks and responsibilities for the Baltic local governments. Municipalities should increase their economic sustainability and enhance administrative capacity to explore EU accession funds and implement EU policies. Considering the above-mentioned problems, the paper focuses on current fiscal situation of local governments in the Baltic countries. The main interest is to analyze local municipalities’ revenue level and structure, expenditure composition and fiscal autonomy conditions
espanolUno de los requisitos esenciales en todo sistema de financiacion descentralizado es la concesion de un grado suficiente de autonomia y corresponsabilidad fiscal a los gobiernos regionales, de modo que estos puedan financiar el nivel de bienes publicos locales que decidan sus ciudadanos En Espana, el sistema de financiacion de las comunidades autonomas de regimen comun incorporo un bajo nivel de corresponsabilidad fiscal entre 1980 y 1996, dada la asimetria entre una amplia descentralizacion del gasto y un modelo de cesion tributaria poco flexible. Desde 1997, y en especial a partir de 2002, la concesion de capacidad normativa y la ampliacion en la cesion tributaria han proporcionado un apreciable nivel de corresponsabilidad fiscal, en el que los tributos cedidos juegan el papel recaudatorio fundamental, constituyendo la imposicion propia un elemento mas de ordenacion economica que recaudatorio. EnglishOne of the essential requirements in any decentralized system of financing is the granting of a sufficient degree of autonomy and fiscal co-responsibility to the regional governments so that they may finance the level of local public amenities decided by their citizens. In Spain, the system of financing of the common regimen autonomous communities included a level of fiscal co-responsibility between 1980 and 1996, given the asymmetry between wide-scale decentralization of expenditure and an inflexible model of tax assignment. Since 1997, and especially from 2002, the conferral of legislative capacity and broader tax assignment have provided a considerable level of fiscal co-responsibility, in which the taxes assigned play an essential role in revenue collection, where the actual taxation is more an element of economic management rather than collection.
Many countries around the world are currently engaged in one way or another in policy debates or reforms of their system of intergovernmental fiscal relations. While the policy dynamics vary greatly from country to country, the focus of such reform efforts can generally be categorized into one of the four main dimensions of intergovernmental fiscal relations, namely the assignment of functional responsibilities (expenditure assignments), the assignment of revenue sources, the provision of intergovernmental fiscal transfers, and the regulatory framework for subnational borrowing and debt. Based on the mantra that “finance should follow function, ” the conceptual starting point of fiscal decentralization reforms is generally held to be the assignment of expenditure responsibilities, which seeks to address the question what functions and expenditure responsibilities should be assigned to each level of government (Bahl 1999). However, a preceding question that is often overlooked pertains to the structure of subnational governments: how should the government sector be structured in order to ensure that fiscal decentralization reforms will result in a more efficient allocation of public resources?
Local government fiscal competition means a series of fiscal activities competing for various economic resources taken by local governments by means of finance in order to enhance the economic power and improve the potential welfare of the regions. Local government fiscal competition includes expenditure competition and tax competition, whose theoretical basis is fiscal decentralization theory. At the different stages of a national e-conomic development, the manifestation of local government fiscal competition is different. China has experienced the fiscal competition characterized mainly by tax competition toward the fiscal competition including tax competition and expenditure competition as well since reform and opening-up. With her access to the WTO and further fiscal decentralization, the expenditure competition is getting more and more important. Based on fiscal competition , the paper attempts to analyze China's economic reform of market from a new approach.
Even in the wake of the most sweeping campaign finance reform law to be enacted in three decades, further significant reform is inevitable. Special interest money continues to flow through loopholes in the Act, and the Presidential Election Campaign Fund is near collapse. The next reform should encourage broader participation in the political process by individual citizens, both to dilute the power of special interests and to serve independent democratic values that recent Supreme Court jurisprudence has identified as vital to meaningful reform. We propose adopting a refundable tax credit of $100/taxpayer for political contributions to federal candidates and national parties; the credit would be targeted to lowerand middle-income Americans. A refundable tax credit is equivalent to giving each eligible citizen up to $100 annually to use for political contributions. We also present data about the relative importance of political contributions by special interests (corporate, labor and other PACs) and individuals that undermine many of the assumptions on which past reform has been based and that have not been discussed in the legal literature. The data clearly show that small contributions by individuals are the dominant source of money in campaigns, and that the influence of special interest money is subtle, appearing to “purchase” benefits like access, a place on the agenda, and minor policy details. Working from an accurate picture of who really pays for politics, and drawing from the experience at the federal and state levels with similar tax refund programs, we present the tax credit as a reform that is simple, easy to administer, and likely to improve political participation by average Americans. Thus, our proposal, unlike the complicated voucher plan with anonymity put forward by Ackerman and Ayres, is likely to be adopted by Congress; moreover, it will appeal to a bipartisan consensus because it mixes public funding with a decentralized allocation mechanism using a tax subsidy.