Observation of the first and second generation of literature on fiscal decentralization together with further branches of political economy, e.g. specifically on the political economy of intergovernmental grants and the widening literature on political business cycles leads to a puzzle: decentralization is a continuing policy trend however in reality there are downsides, institutional, political and other factors that do interfere with decision-making and can increase the chances for inefficient policy outcomes. Infrastructure investment finances at all levels of government are especially prone to election cycles and corruption. Driven from the above context the basic research question guiding my work is: whether local infrastructure policies in Hungary are really designed according to efficiency considerations? What politico-economic factors might affect central and local governments’ allocations on infrastructure investment? To complete this goal, a closer look at municipal capital investment financing in Hungary takes place. Related to the main research question several themes emerge and hypotheses are checked on the effects of the revenue base, local need and socioeconomic indicators on local investment strategies and financing constructions or grant allocations. Does grant financing mean a less careful financial planning? What is the importance of lobbying through different channels? I also search for - and in fact do find evidence of electoral cycle effects and partisan considerations (effect of similarities in political color of central and local governments) in intergovernmental grant distribution and in municipal investment activities. These issues to be researched call for a mix of quantitative and qualitative methods. Some of my hypothesis are tested on limited data from a 2004 survey of city mayors in Hungary. Hypotheses on cycles, determinants of investment outlays of local governments and grant recipiency are tested with linear and Probit panel regressions respectively on a panel dataset comprehensive for all Hungarian local government budgets from 1993-2003, a period bridging three election cycles, linked with some demographic,socioeconomic data and local election data. Findings can add to the discussion on reforming local government finance system overall, on the agenda in Hungary for quite a while, but perhaps also to the new literature on the political economy of failures, delays in socially beneficial reforms. What this dissertation certainly does contribute to is the fairly small pool of international empirical evidences available on political budget cycles, especially at the sub-national level and the emerging literature on the political economy of intergovernmental grants providing the case of one transition country that irrespective of the fact of by now being an EU member sometimes shows certain similarities to the developing ones.
Open access
Local Government Finance and Decentralization
Regional Development and Policy
Hungarian Social, Economic and Educational Studies
Viktória Vásáry, Andrea Elekes, Péter Halmai, Vasary, Viktoria · 6 authors
Can we agree fully with the statement, that “agricultural spending is a major distorting factor in the EU economy and a distinct obstacle to the Lisbon agenda’s implementation”? (Gros, 2008) Is it without question that Europe’s agriculture is in position to become sustainable and competitive without certain kind of common policy with no Community financing? Is it unambiguous in every respect, that the challenges facing the sector – globalization, trade liberalization, climate change, water management, Lisbon process, enlargement, changing preferences – could be answered at national level utilizing exclusively national financial sources? The answers to these questions are complex. So the purpose of the paper is multiple: - Exploration of factors justifying community level intervention. – Could be applied the bottom line of the “decentralization theorem” to budgetary questions and needs of the agricultural policy? According to our hypothesis the answer is considered yes. - Assessing present CAP - taking into account its ability to provide EU wide public goods (multifunctional elements serve in deed significant cross-border externalities) and to create EU value added. - Making an attempt to redefine EU’s agricultural policy through exploring objectives having a greater impact by being implemented at the supranational level and not at other secondary decision levels. – Making an attempt to outline a Common Rural Policy, a policy promoting the provision of public goods required by the society by means of targeted and decoupled economic policy measures. In order to attain the objectives of the paper we apply the theory of fiscal federalism, make analysis on EU public finances in a broader context.
Introduction When scholars talks about local government (LG in continuation), they often point to three basic values that the structures of LG may fulfill (Sharpe, 1973; Stewart, Greenwood, 1995): a) autonomy; because the existence of LG prevents over-concentration of political power and allows for different political choices in different localities, b) democracy; because LG encourages the active involvement of citizens in self-governance; c) effectiveness; because LG is efficient structure for delivery of services tailored to varying needs of localities. With decentralization, decision makers are closer to the results of their decisions, which is helpful in predicting the effects of decisions to be made and in turn supports effective allocation of resources. LG enables a better match of policies with local conditions and preferences. This supports effectiveness both objectively and subjectively (policies are closer to voters' preferences) and variation in solutions promotes innovation and diffusion of positive examples. LG is a feature of all EU states, despite many differences between them. Its importance has been strengthened by the adoption of the subsidiary principle in the Maastricht Treaty and by the EU Charter of LG. Criteria for Expenditure and Revenue Assignment The principles discussed below are among the basic foundations of the fiscal federalism model. As Rattso (2002) notes, model is based on four key assumptions: a) LG is mostly responsible for the delivery of public goods; b) the base for local finance is provided by local taxes (those who pay also benefit), c) there is considerable social mobility; d) in the case of local services, the catchments area is close to the area of administrative jurisdiction, i.e., spillover effects are minimal. The main principles of a decentralized system of public finance recommended by fiscal federalism theory are (Musgrave, 1957; Oates, 1972; King, 1984): a) the division of functions between central and LG is based on the subsidiary principle, which involves a considerable amount of fiscal and functional decentralization. (LG spending to national GDP, although this measure creates several methodological and data problems), b) The allocation of functions takes into account the specific territorial organization. If the structure is to diversified, with many, small units, the functional decentralization cannot be broad. Small units will not be able to perform functions effectively, c) The golden of the balanced budget (Damon, 2002) is enforced by regulations. In short, the rule states that current spending should be financed exclusively from current revenues, while capital investment expenditures are financed from capital receipts, d) The system of local finance is transparent for citizens and LG has an autonomy to form the structure of local expenditures. The most general classification of resources consists of three major categories: a) Own revenues of LG (revenues allocated to LG unconditionally and for an undefined period and that LG has at least some discretion to decide upon these categories of revenue, b) transfers from the central budget in form of grants, c) borrowed resources, d) shared revenues. (1) The model of local finance should conform to the following criteria: a) vertical allocation of resources should reflect the allocation of functions, b) a large proportion of local revenues should come from own sources, because this supports accountability, stimulates councillors and increases citizens interest in local activities, c) equalization system which ensures that each unit is able to provide at least a minimal set of standard services (Buchanan et al., 1999). Principles of Local Taxation There are various candidates for local taxes, and several criteria to help us choose appropriate mix for the country. Some of them are identical with requirements for good taxes in general, but others are specific to LG. …
Sonia Esteban Laleona, Pablo de Frutos Madrazo, María José Prieto Jano
Traditionally, the academic debates about the benefits that the existence of multilevel government structures provide have been directly related to the gains in efficiency that derive from the processes of decentralization of the Public Sector. However, as of the last decades, the Public Finance has broadened its analysis towards other questions, one of them being if the fiscal decentralization influences positively in the economic growth of a country. The objective of this document is to provide a "reading guide" for this new line of investigation on the influence of fiscal decentralization on regional economic growth.
Economic and social cohesion between the EU Member States is one of the explicitly stated goals in the Treaty on European Union. The EU's Structural Funds as a part of the Union's regional policies are a mechanism of conditional grants that provides co-financing for growth enhancing investments. Evidence on the effectiveness of the Structural Funds is mixed. While Boldrin and Canova (2001) find no sign of a catch-up effect of regions receiving aid for the period of 1980-1996, Beugelsdijk and Eijffinger (2005) find a positive relationship between (lagged) Structural Funds expenditure and GDP growth at the national level covering 1995-2001. De La Fuente (2002) points to the fact that the inclusion of conditioning variables might also play a crucial role for the results. Ederveen, deGroot and Nahuis (2002) find that Structural Funds themselves have a negative impact on growth. However, the impact turns out to be significantly positive, when interacting variables measuring institutional quality are taken into account. Similarly, Esposti (2005) shows that additional policy measures (spending on CAP) can have significant counter-effects on the effectiveness of Structural Funds expenditure. So far the federal structure of the EU Member States did not attract much attention when the effectiveness of the Structural Funds is considered. Although the EU Commission requires the inclusion of regional authorities and stakeholders in the planning and implementation procedure of programs funded by Structural Funds, one should expect that the performance is better, where the sub-national authorities are more accustomed to pursuing economic policy and implementing programs. This should be the case in states with a higher degree of sub-national autonomy. Using panel-data for a sample of 13 EU Member States from 1960-1995 the effects of Structural Funds on growth are analysed. Then a decentralization index by Stegarescu (2004) is introduced as an interacting variable in order to measure the degree of sub-national autonomy. This paper shows that increasing sub-national autonomy has a significantly positive impact on the effectiveness of the Union's Structural Funds expenditure.
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.
In recent years, stimulated by globalization, technological innovation and intensifying international competition, there has been a growing trend towards the increasing institutional and geographical concentration of financial systems and markets. At the same time, there has been mounting academic and policy interest in the financing problems faced by new and small firms, which are widely considered to suffer from a ‘funding gap’. These twin developments provide the motivation for this paper, which seeks to throw some theoretical and empirical light on the question of whether the spatial organization of the financial system impacts on the flows of capital to small firms across regions. Is it the case that a heavily spatially-centralized financial system, like that in the UK, militates against the ready access to capital by new and small firms in peripheral regions, while a more decentralized financial system, like that in Germany, results in a more even regional distribution? The paper first discusses this question theoretically in the context of the regional finance literature. It then compares capital market structures and the regional distribution of equity for SMEs in the UK and Germany. This comparison lends some support to the view that capital markets do not function in a space-neutral way, and that a highly centralized system like that in the UK may well introduce spatial bias in the flows of capital to SMEs. It also shows, though, as the case of Germany illustrates, that the actual impact of the geographical organization of capital markets depends on, and is mitigated by, other institutional and regulatory conditions. Our analysis suggests while a geographically decentralized financial system with sizable and well-embedded regional/local clusters of institutions, networks, agents, and markets could be advantageous in various ways, regional/local capital markets also face a number of major challenges and problems. The paper indicates the need for more research in this somewhat neglected area.
Mário Fortuna, José António Cabral Vieira, Margarida Mendes
One objective frequently found in models of decentralized financing is that of equalization. The concern is that poorer jurisdictions receive enough resources for basic services and for development promotion, thus eliminating horizontal and vertical imbalances. In Portugal, decentralization has occurred at two levels: the local, for the whole country and the regional for the autonomous regions of the Azores and Madeira. Decentralization to local governments has undergone several changes in recent decades. The current paper focuses on testing for the presence of an equalization effect in the models adopted to finance municipalities in Portugal, since the nineteen nineties. Using the theoretical background that maintains that for the presence of an equalizing effect it is necessary that, on a per capita basis, poorer regions or localities receive relatively more transfers than the richer jurisdictions, a test is made using a data set that includes all municipalities of Portugal. The situation of the two autonomous regions is controlled with dummy variables. The hypothesis that the models used have an equalizing effect is tested through the sign of the coefficient of the regression of per capita transfers on per capita own resources. In the presence of an equalizing effect the sign will be significant and negative. It is confirmed that, for the period under analysis, the municipalities with lower per capita own revenues are those that receive more transfers per capita. There is, therefore, an equalizing effect in the current transfer system to municipalities. Using pooled data, one can also conclude that the equalization effect has become stronger with the 1998 and 2002 reviews of the system, when compared to the system in effect in 1991.
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.
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
National governments often choose to delegate tasks and burdens to lower levels in a comprehensive system of administration. Local and regional governance thereby becomes an important factor in policy implementation. This paper focuses on the incentive problem that follows from such a delegation of competences to collect taxes and do lending at the local level in a multi-level geo-administrative system. The paper uses the Danish administrative system to illustrate the actual outcomes from such incentive problems. A two-step estimation procedure will be used to derive results on the importance of incentive problems in multi-level geo-administrative systems. Setting up elaborate administrative systems will introduce agency problems that lead to inefficiencies in both local and national governance.
Laura B. Rawlings, Lynne Sherburne-Benz, Julie Van Domelen
The study seeks to answer four questions that summarize the fundamental issues in the international debate about the capacity of social funds to improve beneficiaries' living conditions: o Do social funds reach poor areas and poor households? Do social funds deliver high-quality, sustainable investments? Do social funds affect living standards? How cost-efficient are social funds and the investments they finance, compared with other delivery mechanisms? The findings and lessons from this research reflect a specific moment in the evolution of six social funds and therefore may not fully predict the future impact of current investments. The evaluation assesses subprojects identified and implemented between 1993 and 1999, a period when longer-term objectives-such as increasing access to and utilization of basic services-began to supplant the funds' original emergency mandates. The time period selected allowed enough elapsed time following the implementation of the social fund subprojects to make measurement of impact and sustainability possible. The evaluation does not consider the effects of social fund projects on employment or on income generation-the original objectives of the first generation of social funds, which were introduced in Latin America. It also does not discuss the effect of social fund investments on capacity building-a more recent emphasis of social funds seeking to assist decentralization and community development.
Regional policy has – in general – the intention to supporting the efforts of regions with development problems to overcome their current problems and to stimulate an increase in regional economic growth. If the regional policy measures by a jurisdiction are successful, there will be a tendency towards more economic convergence between the various regions within that jurisdiction, with the result of a higher degree of cohesion between these regions, than in a state without regional policy. There are many studies on evaluating the impact of different instruments of regional policy on cohesion. But there are only few investigations so far into the institutional framework of these instruments. One institutional aspect has become more and more relevant in public discussions during the last few years: In federations (e. g. in the EU), there is in general not only one jurisdiction responsible for regional policy, but two, three or even more levels of government; the responsibilities (or: competences) are fragmentated between these levels. The paper presents a theoretical analysis of the impact of the allocation of competences in the field of regional policy on the outcome (interregional cohesion) and on the costs (economic efficiency) of regional policy. The analysis is based on the Theory of Fiscal Federalism, including the Economic Theory of Intergovernmental Grants. All the possible more central or more decentral arrangements of regional policy are located between two polar cases: At one pole, we have an arrangement where only the central level of government (e. g. the EU level) is responsible for regional policy; neither any subcentral unit of government (e. g. at the member state level in the EU), nor the regions which are to be supported (the less developed regions) have any influence for deciding on the implementation of regional policy instruments, and only the central government has to finance regional policy with its own resources. At the other pole, we find an arrangement where only the subcentral units of government and the less developed regions themselves are deciding on regional policy and are responsible for financing. In connection with financing, different categories of grants in aid may be applied. In addition, the arrangements may differ from each other because of different institutions for controlling the activities of the lower levels. The main hypothesis is, that a more decentralized institutional arrangement is not in general more efficient and effective than a more centralized arrangement; but – as compared to the status quo in Europe – a more decentralized arrangement for some public responsibilities would lead to better results in the field of regional policy. Central questions to be answered are: Have subcentral governments (as compared to central units of government) a tendency for neglecting their subregions with development problems' What is the impact of information costs and asymmetrical information on the choice of the level of government for certain (sub-) responsibilities' To which degree is the central influence stimulating – or: paralyzing – the initiative of the regions which are to be supported?
The paper has two parts: in the first one, economic aspect of regionalization is considered, in the second a financial one. Regionalization, like every type of decentralization, represents a serious reform of a state and brings upon several expected as well as unexpected although significant effects on political, social, and economic life. Its goal is an improvement of political, social, and economic functions of a state, not their deterioration. Unfortunately, experience of other countries does not support overwhelming optimism. Most frequently, regionalization is done due to political considerations; economic considerations are of secondary importance or even neglected. Such a dominance of political reasoning neglects fundamental principles and arguments of the economic science, standards of rational approach to decentralization, and even economic efficiency and equality between citizens. Because of that, the emphasis in this paper is on economic and financial aspects of regionalization in Serbia. In the first part the author explores economic aspects of regionalization; four state functions (regulation, stabilization, redistribution, and allocation) in decentralized setting; relations between regionalization, deregulation, and privatization; vertical distribution of functions (exclusive functions by the state, exclusive functions by regions, shared functions). After that he explores advantages of the selected model of creating regions and distribution of authorities in Serbia, particularly economic authorities of regions (1. land planning, urban land use, housing; 2. development and maintenance of infrastructure of regional importance and coordination of public utilities in municipalities; 3. agriculture; 4. tourism; 5. forestry 6. hunting and fishing; 7. vocational training and employment; 8. ecology; 9. public works). Separate section is devoted to social protection (financial transfers and institutions). In the second part of the paper (Financing the Regions) the author first examines certain issues in principle (fiscal revenues, vertical and horizontal balance, debts and moral hazard) and then considers topics of financing regions in Serbia, such as revenues subsidies, and debts.
Compared to the national level, the local government level in Hungary is more responsive to reform efforts. The Hungarian experience indicates that decentralization is a key programme of the transition process for the emerging democracies of eastern Europe. These experiences also show that the decentralization process will be efficient and effective only if three key requirements are met. These are: (1) a stable and democratic constitutional, legal background; (2) an efficient municipal finance system; and (3) a well-functioning local administration.
Local Government Finance and Decentralization
Hungarian Social, Economic and Educational Studies
Organizational research indicates that large organizations involved in many different activities can counteract the diseconomies of size and complexity, tendency to bureaucratization, and to increasing resistance to innovation by breaking up into relatively autonomous, self-contained units such as relatively autonomous, self-contained divisions, retaining mainly policy control at the centre and a powerful MIS as a monitoring device. States too can enhance their administrative capacity and innovativeness highly by decentralizing and by fragmenting themselves into relatively autonomous, self-contained units headed by professional managers with clear accountability and clear mandate. Such unbundling must, however, be in the pursuit of an integrating, shared vision of national excellence like social justice, economic growth, and improvement in the quality of life. Several case studies from a number of countries of government departments, agencies, and projects that were decentralized along the foregoing lines under a shared vision of state excellence demonstrate the efficacy of this strategy of fragmenting the state in certain effective ways. Several additional mechanisms can institutionalize the culture on innovation in governmental bodies, such as progressively higher goals, with potential conflict among goals. The operationalziation of a strong serving the “customer” commitment, an operationlized commitment to cut costs, to make increasingly technologically sophisticated offerings, to benchmarking, to entrepreneurship, to global scanning for innovations, trends, and opportunities, to periodic diagnosis of the organization’s functioning, to participative decision making and brainstorming for novel but workable solutions, to periodic, exonovation, and toa daunting developmental and growth vision are powerful mechanisms to make government bodies highly innovative.
The special issue of Annales d'Economie et Statistique presented here comes out of an international conference which was held in Marseilles (GREQAM) in June 1994 in connection with a programme of Commissariat General au Plan and with the support of ADRES. Sixty scholars, specialists in economic geography and local public finance, have participated to the conference which was part of the programme of Commissariat General au Plan on Issues and mechanisms in decentralized public action. The objective was to discuss recent work in economics related to the geography of trade and power.
MARTIN R. and MINNS R. (1995) Undermining the financial basis of regions: the spatial structure and implications of the UK pension fund system, Reg. Studies 29, 125–144. Regional growth theory and regional policy traditionally focus on the process of industrial development. Relatively little is known about the flows of money and financial capital that shape that development. This paper examines the spatial organization and implications of the UK pension fund system, one of the principal circuits of financial capital in the national economy. It is shown how the great bulk of pension fund contributions that originate right across the various regions of the UK are channelled into and controlled by financial institutions in the South East of the country. Moreover, those funds are then invested primarily back into companies and organizations located or headquartered in the South East. This spatially centralized system pursues liquidity rather than productive investment, and little of the money trickles down to the regions in the form of finance for capital investment or business expansion. The UK pension fund system thus undermines regions by extracting savings from all over the country and centralizing their management, administration and investment in one region. A key task for regional policy, therefore, should be to promote the decentralization of financial power and financial market structures to the regions so that a greater proportion of money funds remain in and benefit the areas where they originate. MARTIN R. et MINNS R. (1995) L'ébranlement de la base financière des régions: la structure gèographique et les retombées du système de fonds d'assurance-vieillesse du Royaume-Uni, Reg. Studies 29, 125–144. La théorie de croissance régionale et la politique d'aménagement du territoire portent sur le processus de développement industriel. Rares sont les preuves sur les flux d'argent et de capital qui influencent ce développement. Cet article cherche à examiner l'organisation géographique et les retombées du système de fonds d'assurance-vieillesse, l'un des principaux circuits de capital dans l'économie nationale. On démontre comment la masse des cotisations auprès des fonds d'assurance-vieillesse, qui proviennent de toutes les régions du Royaume-Uni, sont affectées aux organismes financiers qui sont situés dans le Sud-Est du pays et qui les gèrent. De surcroît, ces fonds-là sont réinvestis dans une large mesure dans des sociétés et des organismes dont les locaux ou les sièges se trouvent dans le Sud-Est. Ce système centralise du point de vue géographique, porte plutôt sur la liquidité que sur l'investissement productif, et peu d'argent s'infiltre alors dans les régions sous forme de finance désignée pour les dépenses d'investissement ou le développement des entreprises. De cette façon le système de fonds d'assurance-vieillesse du Royaume-Uni ébranle des régions en soutirant des économies dans tout le pays et en centralisant la gestion, l'administration et l'investissement dans une seule région. Par la suite, une tâche primordiale de la politique régionale devrait être alors la promotion de la décentralisation aux régions du pouvoir financier et des structures du des fonds en numeraire reste au sein et au profit des régions d'o[ugrave] ils proviennent. MARTIN R. und MINNS R. (1994) Die Untergrabung der finanziellen Basis der Regionen: die räumliche Struktur des und Implikationen für das britische Rentengeldersystem, Reg. Studies 29, 125–144. Regionalpolitik wie Theorie regionalen Wachstums haben sich immer schon auf den Prozeß industrieller Entwicklung konzentriert. Vergleichsweise wenig weiß man über die Finanzkapital- und Geld-ströme, die diese Entwicklung bestimmen. Der Aufsatz untersucht die räumliche Organisation und Implikationen des britischen Rentengeldersystems, eine der wichtigsten Runden des Finanzkapitals in der Wirtschaft des Landes. Es wird aufgezeigt, wie der Großteil der Rentengelder-beiträge, die aus verschiedenen Regionen des UK zusam-menkommen, Finanzinstituten im Südosten des Landes zugeführt und von ihnen kontrolliert werden. Diese Gelder werden überdies dann vorzugsweise wieder in Gesellschaften und Organisationen investiert, die ihren Standort oder Hauptgeschäftsstelle im Südosten haben. Dieses räumlich zentralisierte System verfolgt statt produktiver Investierung vorzugsweise Liquidität, und den Provinzen fließt nur wenig in Form von Finanzierung von Kapital-investierung oder Geschäftserweiterung zu. Das britische Rentengeldersystem untergräbt somit die Regionen, indem es aus dem ganzen Lande Esparnisse herausholt, und dann Management, Verwaltung und Investierung in einer Region zusammenfaßt. Es sollte deshalb eine Hauptaufgabe der Regionalpolitik sein, die Dezentralisation der Finanzmacht und der Finanzmarkstrukuren auf die Regionen zu betreiben, so daß ein gröberer Anteil der Gelder in den Herkunftsgebieten bleibt und ihnen nützt.
Globalization is moving much more rapidly in finance than in international trade and production. The international financial system is at present undergoverned. Necessary public goods — in furtherance of the objectives of stability, order, equity and efficiency in the global economy — are undersupplied. The world economy would benefit from stronger and more democratic macroeconomic and financial management, preferably centred in the International Monetary Fund. Development finance might best be decentralized from its present over‐concentration in the World Bank. The Chrétien Government has an opportunity, as host of the Group of Seven Summit, to lead the way to a credible and representative review of global economic governance.
Some important aspects of the current French decentralization are enlightened by the recent changes in US public finance. Proceeding from very different premises, the « New Federalism » and the French decentralization share in common a context of general economic slowdown and fiscal tightness. The problems that arise and their solutions are therefore often similar, in spite of conspicuous differences in the institutional frameworks. Such similarities are in broad agreement with the economic theory of decentralized governments. The case-study of the US local public finance clearly reveals the effects of the recession. After several decades of continuing growth in local budgets, the 1981-1982 recession, closely following the « Tax Revolt » movement, caused a reversal in these trends. Both the increase in needs and the decline in revenues have been aggravated by the transfer of competences and finan- cial responsabilities from the federal government to the states. An increase in state and local taxes could not be avoided. And, in so far as some existing public services are given a high priority, other outlays had to be reduced : thus public employment shrank and public investment sharply declined.
The author explains mechanism of local economy functioning and distinguishes three sets in this mechanism: decentralized, centralized and mixed sets. Taking into account conditions of local economy functioning, in which local authorities are decisive subjects (local administration and people's councils) the author formulates an opinion that postulates on decentralization, which are stated in discussions, practically refer to substitution of centralized set with mixed set — and not decentralized one — of local economy. Centralized set can not be fully abolished even when mixed set is a predominating set of local economy functioning. Anyway it does not eliminate the possibility of competence expansion of leading local authorities. In such situation decentralized set of local economy functioning, in strict meaning of the word, can play a marginal role only. The author considers in a broad way the role played by financial factor in local economy functioning. A special attention is paid to dissimilarity of financing principles in particular sets of this economy, because efficiency of the reform considerably depends on proper knowledge about these principles.
1. Like many other countries, Portugal is facing numerous major problems related to regional unbalance and consequently to the location of economic activity. An unfortunate tendency has long been to judge an economy almost solely from the viewpoint of national production and consumption aggregats, without reference to the geographic division of economic activity.However the questions of social justice in the distributions of the fruits of economic development are as important and as different in terms of regions as in terms of social classes.Thus, at the present, increasingly attention is not being limited to the overall results of national development; the results are being accepted as satisfactory only if they concern the whole of the country, if each region is able to contribute to and participate in the national growth..On the other hand, Government activity to guide economic and social development involves not only the activity of policies and programmes but also the losely related process of formulation of goals and means and of appraisal of the results.If planning for regional development is intended to intervene realistically upon reality, it should be a continuous process in which the various units and levels of government subject the entire process to continuous review and evaluation leading to adjustment of plans, programmes and projects whenever necessary. Review and evaluation then form the transition to a new cycle of planning and decision making, moving ahead in time on the basis of a continuous stream of feedback information. At the same time, the fact is stressed that planning is actually a combination of plan formulation and plan inplementation.Institutional framework, in the modern sense of the process of achieving intended results through organizations, is a major factor at all levels - national, regional, sectoral and local. There was a time when proposals for new development pro. jects - particularly large programmes for resource development, new industries, improved education and health services - were considered only in terms of economic and technical feasibility.. After many unfortunate failures, institutional feasibility has come to be recognized as also an important dimension of planning.For evaluating the evolution of the objectives and means which have characterized Portuguese regional planning I rely in large measure on a general policy model formulated in the light of relevant theoretical and empirical considerations from economics and related social science disciplineOne of the basic attributes of this model is its distinction among three types of analytic regions: congested, potential, and backward. The advantaSe of these distinctions over the common division between "developed" and "underdeveloped" regions is that they come to grips directly with the problem of overconcentration of population and economic activity in some areas, a problem too often neglected in favour of studying the difficulties experienced by relatively underdeveloped regions.The circumstances which have given rise to the evolution of' Portuguese regional policy are compared with the assumptions of this basic model. Attention is given to the basic theoretical notions that have animated Portuguese thought concerning regional development and urban-rural integration, as well as to concrete measures which have been undertaken or which are envisaged for the future.On the basis of these considerations an effort is made to formulate a number of generalizations regarding the potential strenghts and difficulties of regional planning policy-making and a number of operationally feasible proposale are set forth for dealing with the difficulties.2. Portuguese regional planning was initiated on the basis of a deliberated attempt to deal rationally with spatial resource allocation, namely through the policy of "ordenamento do território".In the terminology of the Third Plan, the Portuguese approach maintains that the policy of "ordenamento do território" must find a practical compromise between regions depending on a policy of publicly induced growth and regions depending on a policy of induced public investment. On the one hand, it must give every opportunity, under conditions of lively competition, to strong regions whose potential benefits the whole of the country. On the other hand, it must seek to involve the weak regions in a process of development at first induced, then autonomous, in a manner which will enable them to participate in the current of modernization and expansion which characterizes our time.I try to show that the difficulties of Portuguese's backward regions are in large measure a result of a relative lack of benefits deriving from social investment. This is not to deny that economic investment in backward regions will produce advantages, but the effectiveness of such projects also depends on the degree to which the regions' human resources have been developed by social investment.Therefore, I stress that while there is official recognition of the needs to provide facilities for training surplus agricultural labor for employment in industry, there has not been adequate emphasis on the general problem of developing the human resources of these areas, despite the multitude of evidence concerning pronounced needs in this regard..On the other hand, a great deal has been said and written about moving industry and other economic activities to people, but policy-makers generally are more reluctant to urge the movement of people to job sources. Until now official Portuguese policy has been unable to oppose and to diminish the growth of a surprising number of rural individually-owned farms in the face of rapid technological change. This attitude, combined with inadequate social investment, has served to perpetuate the social and economic structures characteristic of backward agricultural regions of the center and the north including a surplus agricultural labor force.One of the principal arguments in favour of moving industry to backward regions, even at considerable expense in theform of subsidies or similar means, has been that the social costs involved in this type of action are less than the social costswhich would entail the uprooting of persons seeking employment in other regions as well as the increased congestion which would result in industrial agglomerations, However, the latter difficulty is now a necessary one, since migration can be channeled to intermediate or potential, rather than congested regions.On the other hand, the issue of uprooting residents of backward areas is a genuine problem since there is abundant evidence that the number of persons preferring to live in these regions is high in both absolute and relative terms.. Moreover, migration is not feasible for many persons because deficiencies in social investment in backward regions have limited the development of human resources and thus the possibility for their employment in other regions. Nevertheless, these arguments should not be used to discourage migration, since at the margin there are always persons ready and willing to migrate from backward regions.In general, it may be said that Portuguese regional policy has been facilitated by its distinction among three types of region, and that its over-all division of effort among the regions so as to induce growth in backward regions while limiting the growth of the Lisbon region and allowing for the expansion of potential regions has been substantially correct. Investment policywithin regions, however, must place relatively greater stress on social investment for backward regions. As to population policy, the new emphasis on encouraging interregional labor migration is a positive step away from the more conservative attitudes which prevailed heretofore.3. In any event, it is obvious that the value of the Portuguese regional development policy is related to the actual context in which it is to be applied. In this respect, the creation of regional organisms to participate in the formulation of regional priorities and in the regionalization of the government budget are of particular value in the elaboration of political ends and means.Unfortunately, earlier efforts in this direction were characterized by important defects. The prograps for regional action which were drawn up as planning guidelines for the various planning regions generally have been plans in name only. They have been for the most part inventories of regional conditions at a giventime. In addition, they have been deficient intipulating orders of priority and modes of finance for suggested future projects.Nevertheless, these programs have served to confront the Regional Planning Commissions with the need for horizontal consultation and coordination in regional terms as a complement to vertical planning by sectors; they have marked an initial, if not always successful, attempt to encourage cooperation among ministries and departments on common problems..Thus, in order to satisfy the objectives of regional development foregoing discussed, the need for reform of the structures - or at least changes in the institutional apparatus - become increasingly necessary. To avoid "sprinkling" of public funds it is not enough just to introduce new methods into the organizational bodies concerned; it becomes clear that something has to be done about the decision-making structures themselves. Two complementary requirements become apparent among others:- firstly, greater decentralization of decisions within the institutional apparatus and greater participation of people.- secondly, horizontal co-ordination in order to break up the vertical compartmentalizations and to create in that way the conditions for a better synthesis capable of inspiring better decisions.Just now, a new development Plan for Portugal is in preparation covering the period 1974-1979, Considering the methods of planning which have been employed in the country, one could