We study how financial frictions amplify labor supply shocks in a macroeconomic model with occasionally binding financing constraints. Workers supply labor to entrepreneurs who borrow to purchase factors of production. Borrowing capacity is restricted by the value of capital, generating a pecuniary externality when financing constraints bind. Additionally, there is a distributive externality operating through wages. The planner's allocation can be decentralized with two instruments: a credit tax/subsidy and a labor tax/subsidy. Labor shocks, such as the COVID-19 shock, amplify the policy responses, which critically depend on whether financing constraints bind or not.
The fiscal decentralization in Myanmar continues to deteriorate and pose a challenge the long lasting for the growth in the longer time horizon.The main objective of this paper is to observe the fiscal decentralization and rural infrastructure development: evidence from Myanmar and examine whether fiscal decentralization effect directly or indirectly on infrastructure by using an econometric model for the period 2011-2018.This study examines the budget decentralization's impact on infrastructure not only in the long run but also in the short run.The long and short run estimates are investigated using multiple regression method and fixed effects estimation method.Two variables including Revenue autonomy and the total number of miles of earth road construction were used in this analysis.The data was collected from the Ministry of Planning, Finance and Industry, Budget Department and the Department of Highways.Through the analysis findings show that Revenue autonomy positively causes the earth road construction.That's why this observation concluded that earth road construction causes Revenue autonomy and Revenue autonomy causes the earth road construction.There is a bidirectional causal relationship in both the earth road construction variable and Revenue autonomy variable and exists a long run relationship between Revenue autonomy and the earth road construction from multiple regression method and fixed effects estimation method.Therefore, Revenue autonomy policy needs to be coordinated with each other for curbing the earth road construction.
Government of Uganda is undertaking reforms to improve on the funding levels and modalities of local governments but is faced with a limited budget to fund both the central government and decentralized functions. Less is known about the effect of central government transfers to local revenue collection especially in the context of decentralization in Uganda. We assessed the effects of central government transfers on local revenue generation by municipalities in Uganda by analyzing the trends of central government transfers and locally generated revenues by the municipal councils and assessing the effects of central government transfers on own local revenue generation. Our study focused on municipalities that have been in existence since introduction of decentralization policy and some of these have recently been upgraded into cities. Time series data covering the selected municipalities were obtained from the Local Government Finance Commission. The dataset comprised of locally generated revenue and central government transfers for 13 old municipal councils. The data was in Excel and it had to be exported to E-Views statistical software for further analysis using the fixed effects regression model. Our findings indicate that over the period 2002 to 2017, both central government grants and local revenue generation grew exponentially. We find that increased central government grants contributed to a decline in locally generated revenue and this partly attributable to too much reliance of the local governments on central grants. The results showed that the lagged total central government grants had a significant negative effect on the locally generated revenue. Government should factor in the allocation formula for central government grants to the local revenue performance to serve as an incentive for the municipal councils to raise own local revenue.
The role and place of costs policy in the modern system of financial regulation of budgetary institutions is defined. The priorities facing the national system of budgetary institutions are identified, taking into account the need to strengthen its effectiveness and efficiency, including in the part: creating conditions for increasing the economic independence of budgetary institutions based on the replacement of estimated funding for end-to-end budgeting; updating the institutional mechanisms for financing and co-financing of socially important services; increased transparency and publicity of activities; introducing a system for evaluating the quality of services provided; introduction of an institution of effective public financial control at all stages of the management cycle, starting with planning. A methodology for evaluating the socio-economic costs efficiency of budgetary institutions is proposed, including the definitions of relative fiscal autonomy and of the decentralization level of the system of financing for the network of budgetary institutions, which can be used to characterize the compositional structure of financial policy in the sphere of costs. The role of fiscal decentralization in financing the costs of social development is defined. The specifics of use of the program-targeted method in financing the activities of budgetary institutions are characterized. Ways to improve the cost efficiency of budgetary institutions in the spheres of education and public health are suggested.
In the process of further transferring to the county of the space of economic and social development, how to solve the financial predicament at the county level, stimulate the vitality of county development and improve the people’s livelihood security system at the county level through the adjustment of the financial system have become the core content of the financial system reform below the province level. Finance is a kind of distribution system of “controlling finance by government and administrating through finance” with the state regime system as the main body. It has great significance for the government to perform and transform its functions. Financial reform will inevitably become an important part of the overall reform. Based on the decentralized reform mode under the province, this paper investigates the economic performance of the reform of the County Administrated by Province and the transmission mechanism of the reform from the two aspects of economic growth speed and industrial structure adjustment.
In developed countries, urban growth has multiplied the demand for investment in basic infrastructure services such as water supply, waste removal, roads and mass transportation. At the same time, decentralization strategies have shifted the responsibility for much of these investments to the local governments. This decentralized investment requires the development of decentralized capital financing. No longer can a central government pay for local investment by raising national taxes or borrowings on international markets and using the funds simply to construct projects at the local level. The introduction of municipal bonds is one of the alternative source of funds to finance the escalating costs of financing local governments. This paper discusses the conditions underlying the development of municipal credit markets, which Malaysia can use to provide a vehicle to narrow the local government’s resource gap through debt funding.
Decentralization and fiscal decentralization constitute one of the most followed trends for political and economic reform in recent years around the world. Albania, in the 1990s, begins its process of transitioning from a centralized economy to a free-market economy. This process is accompanied by transforming existing economic mechanisms and infrastructure to better function the free-markets model, but above all, with the need to develop and create new legal, institutional, economic, and social instruments and spaces to increase the allocation and efficiency of public and private resources. The objective of this study is to give an appropriate answer to the question: What has been the impact of decentralization reforms on the performance of public services provided by local government? The research paper will focus on the role that improvements and legislative changes play in the country's economic growth. Within the past two decades, progress is made in advancing decentralization reform, but there are still many challenges ahead, such as the lack of a clear legal and regulatory framework. Adding to that concern is the financial autonomy of local governments, which remains a challenge for the future. The research methodology used will be a descriptive analysis of data obtained from the Ministry of Finance and Economy and local municipalities on the impact of the reforms. Recommendations and suggestions will be given on the reforming process, as well as ways to increase the efficiency of local government units.
This paper summarizes the arguments and counterarguments within the scientific discussion on the influence of fiscal decentralization measures on the management of innovative country development. The main purpose of the research is to test the hypothesis that expenditure and revenue decentralizations have a positive impact on the management of innovative country development. Testing the hypothesis considers realization of panel data regression analysis, and consists of several stages, such as: 1) elimination of control variables multicollinearity based on the correlation analysis; 2) identification of the regression model specification (fixed or random effects model) with the help of Hausman test; 3) realization of the regression analysis and characteristic of its results (confirmation or rejection of the hypothesis). It also should be noted that country sample consists of 12 unitary European countries (Czech Republic, Denmark, Estonia, France, Hungary, Italy, Latvia, Lithuania, Poland, Slovak Republic, Slovenia, and Ukraine). Time horizon – 2008-2018. Global Innovation Index is a measure of innovative country development. At the same time, the ratio of local budget revenue to consolidated budget revenue, the rate of domestic budget expenditure to consolidated budget expenditure, the proportion of local budget tax revenue to gross local budget revenue are measures of fiscal decentralization in the research. There are also selected a set of control variables that often used in economic growth models and reflect macroeconomic perspectives of country development. However, the practical realization of the stages, as mentioned above, allow identifying that fixed effect specification of the model is more appropriate in all three cases (for three different measures of fiscal decentralization). Panel data regression analysis allows confirming the hypothesis on the positive impact of revenue fiscal decentralization and the negative impact of expenditure decentralization on innovative country development. In turn, there is no statistically significant cohesion between ratio of local budget tax revenue to gross local budget revenue and Global Innovation Index. These findings in terms of fiscal decentralization reform might be considered in order to ensure a balance between power (expenditures) redistribution from central to sub-central governments and local budget financial capacity. While in terms of innovative country development, it should be considered that the lack of local budget financial resources to cover all redistributed from central government level powers makes it impossible to invest in the development of innovation. However, the increase of local government financial capacity creates opportunities not just for essential functions financing but also advanced features investment such as innovative development. Keywords fiscal decentralization, innovation development, local budget expenditures, local budget revenue, local community.
In connection with the expiration, in 2020, of basic regulatory and legal acts coordinating the implementation of the decentralization, it is needed to actualize and determine further directions of reform of the public finance management system. The purpose of the article is to determine efficient methods and directions of further improvement of the financial equalization system in Ukraine in order to form progressive local budget resource model, which by more balanced socio-economic development of municipalities will meet the needs of the population. The article addresses the essence and main components of financial equalization as a tool of budget regulation. The contents of the fiscal imbalance, horizontal and vertical equalization, evolution of methods of removal of fiscal disparities are highlighted. A European approach to overcoming the effects of the unequal distribution of potential sources of the financing of expenditures of bodies of local self-government is characterized. Features and invariance of reform of the public finance management system on the basis of decentralization, renewal of the financial equalization mechanism are considered. As a result of research, the effects (achievements and shortcomings) of the functioning of tools of vertical and horizontal equalization in the budget system of Ukraine implemented as a result of reform of fiscal decentralization, are analyzed. Basic recommendations aimed at further strengthening and establishing a stable local budgets base being a foundation for the whole budget system and a financial basis for local self-government, are proposed, on the strategy of improving the financial equalization mechanism that will provide achieving a balance of the interests of all participants in inter-budgetary relations.
This paper aims to measure the degree of fiscal decentralization in Jordan by estimating the indicators used by the World Bank and the International Monetary Fund. These are the share of local units in public revenues, the share of public spending, and the share of compensation for workers in local units from the total compensation of workers in the public sector. The study uses set of data about public revenues and expenditures of the central government, independent government units, as well as the municipalities’ budgets figures. These data are for the period 2016-2018 and published electronically by the Ministry of Finance and the Ministry of Local Administration in Jordan. The study revealed progress in the field of political and administrative decentralization represented in the establishment of elected councils at the national, regional, and municipal levels and the transfer of a number of powers from central authorities to regional or local bodies. The issuance of a new decentralization law and the amendment of the Municipalities Law in 2015. The results showed that the degree of fiscal decentralization is very low in Jordan, especially when compared to other countries that had implemented decentralization reforms.
Richard Bluhm, Andreas Fuchs, Austin Strange, Axel Dreher · 6 authors
This paper studies the causal effect of transport infrastructure on the spatial distribution of economic activity within subnational regions across a large number of developing countries. To do so, we introduce a new global dataset of geolocated Chinese grant- and loan-financed development projects from 2000 to 2014 and combine it with measures of spatial concentration based on remotely sensed data. We find that Chinese-financed transportation projects decentralize economic activity within regions, as measured by a spatial Gini coefficient , by 2.2 percentage points. The treatment effects are particularly strong in regions that are less developed, more urbanized, and located closer to cities.
Objective – Changes in financial authority as a result of decentralization are expected to make provinces in Indonesia become more flexible in approving their finances. However, it goes beyond central government transfers which make local governments more consumptive, which impacts on the phenomenon of the effect of flypaper. This study aims to identify the influence of the government’s fiscal on regional expenditure and identify the effect of flypaper on the regional expenditure in Kalimantan. Methodology/Technique – The research uses panel data from 56 regencies and cities on Kalimantan Island. Pooled least square method is used. Findings – The results show that intergovernmental fiscal revenue has a significant relationship with expenditure. Further, the flypaper effect occurs in regional expenditure which means that districts and cities in Kalimantan are still dependent on the central government to finance regional expenditures. They are not able to maximize their respective regional income. Novelty – These results indicate that the existence of local revenue derived from taxes has not been able to be optimally absorbed. Thus, dependence on intergovernmental transfers is very high. In addition, the flypaper effect also indicated that the intervention of the central government came into regional development planning programs. Type of Paper: Empirical Keywords: Flypaper Effect; Intergovernmental Transfer; Fiscal; Grants. Reference to this paper should be made as follows: Yacoub, Y; Lestari, N. 2019. Flypaper Effect in Indonesia: The Case of Kalimantan, J. Fin. Bank. Review, 4 (4): 116 – 121 https://doi.org/10.35609/jfbr.2019.4.4(1) JEL Classification: B22, D02, H02, H21, H3.
Nadiya Dubrovina, Erika Neubauerová, Michal Fabuš, Оксана Тулай
Nowadays the problems of optimal taxation and tax distribution are closely connected with growth of decentralization and democracy in the world, especially in EU and other countries, such as USA, Canada, etc. Many economists and analysts studied the problems of co-operation between central and local administration in the realization of the state programmes and efficiency of public services on different levels (central, regional or local). Due to the theoretical and empirical evidence it was clear that some functions of public administration on the central level are not carried out efficiently and some competences of public administration can be transferred to the local levels. Thus, the problems of competences and public finance distribution between central level (state) and other levels (regional or local) are the main aspects to discuss in the theories of fiscal federalism and fiscal decentralization. In the theory of fiscal federalism the problem of taxes allocation between different levels of government is considered to be one of important tools for realization of stabilization and allocation functions of public finance. It should be noted that one of the theoretical and research problems is how to evaluate the measure for financial decentralization. There are different approaches to this problem in modern research such as qualitative (for example, grouping countries based on some qualitative criteria or experts’ evaluation of reforms focuse on financial decentralization) or quantitative ( a set of different ratios, geometric mean of different indicators, aggregated index, etc.). The purpose of the research is to obtain the aggregated indicators for evaluation of public finance distribution on central and local levels and to analyze the balance between these indicators for EU countries. For our research we used the idea of aggregated indicator to evaluate the measure of dependence upon central government expenditure and measure of local autonomy development. Due to the methodology for calculation of aggregated index proposed by Helwig the value of the aggregated index is varied from 0 to 1, or from minimal possible level to maximum possible level of the generalized characteristics described by the original set of indicators. Thus, if measure of public finance dependence upon central government Int_C is more closed to 1, then central government plays a greater role in expenditure for public finance. If measure of local autonomy Int_L is more closed to 1, then local government has more opportunities in their revenue and expenditure. It should be noted that for the balanced position of the country on the plot the values of the Int_C and Int_L should be equal to or lie on 45 degree line. If the bundles lie upper 45 degree line it means that level of local autonomy is more expressed, and vice versa, if the bundles lie lower 45 degree line it means that level of local autonomy is less expressed. The aggregated indices Int_C and Int_L were calculated for EU countries during the period of 2002–2017 and it makes possible to evaluate the features of national fiscal policy in balance between distribution of funds for central and local levels.
This chapter explores the variation across states in size, condition, and financing of the nation’s highway system and suggests ways to build and maintain the system to meet the needs of the 21st century economy. It provides preliminary evidence of how the differences lead to regional differences in the net return to highway capital. The chapter examines the decentralized approach to financing highways and the selection of highway projects. It also explores evidence of the extent to which this mechanism allows for states and local entities to pursue the sometimes conflicting goals of meeting local demand by businesses and residents for transportation services and providing for an efficient national highway system. A hallmark of the nation’s highway system is the federal-state partnership in which states select the projects they wish to undertake and the federal government matches state funding by up to 90 percent of total project costs on eligible highway projects.
Local governments in China faced a mismatch between fiscal revenue and expenditure responsibilities after tax sharing reform in 1994. Governments are not only suppliers of public goods, but also monopolists of the primary market of land, operating land assets through land transfer, and land mortgage to increase extra budgetary fiscal revenue. Relevant research and empirical evidence found that local governments tend to break the balance of public goods supply when pursuing the growth of land revenues, and they excessively increased economic construction expenditures and weakened investment in social security and general public expenditure. However, through the empirical analysis of panel data of 30 provincial capital cities in China from 2007 to 2015, we found that these cities tend to improve the overall public service environment in the region through land financing, thus continuously improving their relative competitive advantages.
In this article, we lay out the results of an analysis of the role of property tax regime in the local finance of Kosovo and highlight the current advantages and weaknesses. Design/Methodology/Approach: We do this by carrying out an analysis of the legislation in force, which regulates financial issues at the central and local levels, the functioning of property tax, and other financial implications for municipalities. In doing this we review the level of dependence of municipalities on central government, grants and their share, as well as other issues which have an impact on fiscal decentralization. We also analyse tax system and its evolution, the participation of tax categories and municipality tax in central and local budgets and give specific accentuation to property taxation, role in the taxation system and local finances. Moreover, we present the institutional structures and their competencies, relationship between central and local institutions. Findings: The current situation and system in place leaves much to be desired and property taxes may have more potential as a revenue source for municipalities. Practical Implications: This article shows the importance for municipalities to find a means to self-finance through their own sources. Originality/Value: We define needs for strengthening the Own Source Revenues (OSR), taking strong and coordinated steps to improve the management and collection of OSRs in general and property tax in particular.
We exploit the public good attributes of information and communication technologies (ICTs) and theoretically analyze an aggregate economy of two smart cities in which ICTs are provided in either a decentralized or a centralized manner. We first determine the efficient ICT levels that maximize the aggregate surplus from the provision of ICTs in the two cities. Second, we compute the optimal level of ICT provision in the two cities in a decentralized regime in which spending on the ICTs is financed by a uniform tax on the city residents. Third, we ascertain the optimal level of ICT provision in the two cities in a centralized regime subject to equal provision of ICTs and cost sharing. Fourth, we show that if the two cities have the same preference for ICTs then centralization is preferable to decentralization as long as there is a spillover from the provision of ICTs. Finally, we show that if the two cities have dissimilar preferences for ICTs then centralization is preferable to decentralization as long as the spillover exceeds a certain threshold.
A mainstream motivation for decentralized government is to enable public service investments to better align with political preferences that may differ by geographical region. This paper examines how political preferences determine local government provision of hospital services. We find that local governments in areas more supportive of public insurance expansion responded to such state action by increasing expenditures on hospitals, whereas those in areas that voted against such expansions used the savings to reduce property taxes. This finding suggests that local government financial responses indeed align with political preferences.
Cinzia Di Novi, Massimiliano Piacenza, Silvana Robone, Gilberto Turati
Recent theories on fiscal decentralization support the view that sub-national governments who finance a larger share of their spending with taxes raised locally by themselves are more accountable towards their citizens. Whilst evidence on improvements in spending efficiency is relatively common, little is known about the effects on inequalities amongst the population. In this paper we exploit a reform aimed at increasing regional tax autonomy in Italy to provide quasi-experimental evidence on the impact of fiscal decentralization on health disparities between- and within-regions. Our findings, robust to a number of robustness checks, support the view that fiscal decentralization does not impact on between-regional inequalities but can help to reduce inequalities within regions. However, this last effect depends on the degree of economic development: richer regions are better than poorer ones in containing inequalities.
The concept of decentralisation became one of the most discussed concepts in the literature, especially in political science and public finance in the post-2000 era with the globalisation process and the influence of international fiscal institutions. Many studies were made and literature was formed on the topic, based on the assumption that the transfer of fiscal authorities and responsibilities of the offering of public goods and services would create positive economic consequences particularly in developing countries.
The aim of this study is to focus on fiscal decentralization and regional financial autonomy in Slovakia. The public administration reform and fiscal decentralization process in Slovakia ought to increase the autonomy of the multi-level governance and to decrease its dependency on state budgeting and other transfers. We argue that regional territorial governance is greatly dependent on financial incentives from central state financing, which limits the expected effect of decentralization and regional fiscal autonomy. By collecting quantitative data on state transfers and revenues to regional governments we demonstrate the limits of spatial, financial and decision-making autonomy within particular regions. The selected time frame 2005-2016 reflects all stages, reforms and changes in the fiscal decentralization of the second level governance in Slovakia.