Citra Fadhilah Utami, Arum Ira Nadhira, Clarisa Rofiati, Della Affesia Putri
Urban infrastructure financing in Indonesia faces a structural funding gap alongside rising subnational fiscal risk under decentralization. Therefore, this study aimed to develop a Multi-Criteria Decision Analysis framework to allocate loans across 50 priority cities in the 2025–2029 National Development Plan. The framework integrated fiscal capacity, debt sustainability, institutional readiness, public investment productivity, and spatial role into three composite indices, namely Soft Gate, Impact, and Priority. Using a weighted additive framework with percentile-based screening, cities were classified into Loan Priority, Blended, Grant, and Selective categories. The results showed that 28 percent qualified as Loan Priority, while 24 percent require blended mechanisms due to fiscal-impact mismatch. In conclusion, the framework enhances fiscal discipline and transparency in subnational borrowing decisions.
Regarding recently increasing governance phenomena, this article examines the modern conception of ‘fiscal decentralization,’ drawing on previous major theoretical discussions over centuries especially from a perspective of political economy. As the financial and economic component of ‘autonomy,’ fiscal decentralization may embrace both the technocratic and systematic notion of ‘management’ and governmental and legitimate notion of ‘political power.’ In this regard, the essence of this political economic component of autonomy lies local governments’ endogenous growth in their economy and finance from internalizing external economies of scale under monopolistic competition among themselves through multilayered and pluralist ‘economic’ governance whose dynamics are nested constestingly within the central government. The representative political economic agent to determine the eventual allocation of resources in this dynamics is an innovated Tieboutian consumer-voter revealing preferences for local public goods according to their increasing ‘regional ability to pay’ (RAP) when external economies of scale are internalised to expand the ‘scale’ of regional economies or finances under monopolistic competition. This simplified new ‘monopolistic competition’ model of local public goods distinguishes the (long-run) fixed cost of local public fixed asset or (social overhead) capital from the scale-variant variable cost of local public service although its basic aggregate structure of linear function of output and consumption originates from the canonical functions of the ‘new economic geography.’ Our model of local public goods newly embraces externalities, and scale economies under monopolistic competition, although its welfare analysis, whose in-depth analytics and theoretical and policy implications are to be further investigated in subsequent research, have not presented.
In Qing Dynasty China, the inter-government fiscal arrangement was characterized by a “dual-track fiscal system” in which a formal system with a central budget of revenues and spending coexisted with a decentralized and fragmented informal local fiscal system financed by miscellaneous extra-legal taxes. Why did the dual-track fiscal system endure despite its obvious flaws? Why was the Qing state unable to establish a stable and rationalized fiscal federalism? This chapter investigates the causes and consequences of the dual-track fiscal system. Through historical institutional analysis and several empirical studies, we propose a novel explanation based on the opportunistic behavior and credible commitment by the central government. Due to the central government’s inability to credibly commit to not encroaching on the formal fiscal powers of lower-level governments, the decentralized, off-budget, and informal local finances represent an “institutional equilibrium”.
Whether fiscal transfers can simultaneously achieve the dual goals of equity and growth has been a key topic of public finance research. This paper examines China's fiscal decentralization system and its intergovernmental transfer practices, proposing two conditions under which equity-oriented transfer systems may promote economic growth: The effectively motivate local officials' enthusiasm for economic development and the receiving regions' high marginal capital returns. We employ unique fiscal data from China's county-level economies for the period 2016–2021 to conduct regression analyses. The results show that provinces with more equitable distribution of transfer payments exhibit better economic growth at the county level. However, at the provincial level, there is a non-significant but noteworthy economic loss. This is attributed to the reverse incentives created by the equalization of fiscal transfers, which encourage growth in smaller counties but hinder growth in larger ones. The main mechanisms driving these reverse incentives include insufficient growth potential, distorted fiscal spending preferences, and an over-reliance on transfer payments. Our study demonstrates that, even within China's unique fiscal system and local development incentives, the allocation of fiscal transfer funds still faces a trade-off between equity and growth. This deepens our understanding of the effectiveness of fiscal transfer systems and the logic of local fiscal operations under a multi-level fiscal governance framework.
Type of the article: Research ArticleAbstractThis paper investigates the determinants of local public investment in Morocco, a country undergoing decentralization and facing persistent regional disparities. The study aims to identify the key factors driving capital expenditure across Morocco’s 12 regions and their local governments, including regional, provincial, and municipal councils, from 2017 to 2024. A dynamic panel of 96 observations is constructed, and a generalized method of moments (GMM) estimator is applied to address endogeneity, control for regional fixed effects, and account for the temporal persistence of investment. The choice of GMM is supported by prior descriptive analysis and the absence of spatial autocorrelation, confirmed by Moran’s I test. The results show that financial resources play a central role in shaping regional investment levels. Specifically, both own-source revenues and central government transfers have a positive and statistically significant effect on investment, with elasticities of 0.43 and 1.35, respectively. Public debt also contributes positively (0.21%), suggesting its potential as a complementary financing tool. In contrast, personnel expenditure exerts a crowding-out effect (−0.48%), reducing the fiscal space available for investment. Other operating expenditures and regional population show no significant impact. The model is robust (R² = 0.757) and satisfies the Hansen test (p = 0.095). Overall, the findings highlight the decisive role of financial autonomy and the effectiveness of intergovernmental transfers in enhancing the investment capacity of local governments. The results also call for better management of operating expenses to avoid limiting capital investment potential.
This study explores the financing of local governance in Nepal, focusing on Neelakantha Municipality to evaluate fiscal federalism under the country’s three-tier governance system. Analyzing revenue and expenditure data from FY 2077/78 to 2079/80, the research reveals a significant dependence on intergovernmental transfers, which comprised over 55% of total revenue, while internal revenue generation declined to as low as 2.8%. Despite consistent budget surpluses, the municipality struggled with capital expenditure execution, achieving as little as 61% in some years. Using indicators such as the Fiscal Autonomy Ratio (FAR), Local Fiscal Dependency Ratio (LFDR), and Financial Autonomy Index (FAI), the study identifies weak fiscal autonomy and increasing external dependence, with FAR values ranging from 4.0% to 38.5%, FAI declining to 18.0% by FY 2079/80, and LFDR trending upward. These trends reflect administrative inefficiencies in revenue collection and budget implementation. Although Nepal’s legal provisions for fiscal federalism are robust, the study concludes that implementation gaps—such as vertical and horizontal fiscal imbalances, overlapping tax structures, and limited local capacity—continue to undermine effectiveness. It recommends enhancing local revenue administration, improving expenditure management, and strengthening performance monitoring. The case of Neelakantha Municipality underscores the need for governance reforms to support institutional design and realize the goals of meaningful fiscal decentralization.
This study applied the Spatial Durbin model (SDM) to examine the regional impact of fiscal federalism on green financing and environmental quality in China between 2000 and 2020. Using principal component analysis (PCA) in STATA, the environmental quality index and green financing (GF) model were created. The fully modified ordinary least squares (FMOLS) and dynamic panel ordinary least squares (DOLS) approaches were used to assess the baseline model’s robustness. The findings indicate that there is a beneficial and noteworthy impact on environmental quality from the decentralization of fiscal expenditure and GF. Moreover GF is positively and significantly correlated with green technological innovation (GTI) and fiscal decentralization (FD), both of which are identified as GF accelerators. The association between the environment and the interaction impact of GF and green technology (GT) is favorable and noteworthy. Based on this study, the Chinese Government should expedite the decentralization process to improve GF and, eventually, environmental quality. Fiscal expenditure decentralization (F.DE) and GT play a significant role in promoting environmentally friendly technologies, optimal energy use, and innovations in the effort to create the least polluting economy.
Equitable education systems contribute to fostering thriving societies. However, decentralization reforms in school finance pose challenges to equity and social justice. Using longitudinal multilevel models, we examined the trends in equity of local education funding distribution in 250 Israeli local authorities from 2014 to 2020. Our findings revealed a consistently inequitable allocation: high-SES and majority-populated areas allocated double the resources compared with low-SES and minority-populated areas, with funding disparities increasing over time. These findings suggest the need for regulations governing local funding, particularly in diverse societies, to promote equity in education finance.
Charles Nicholas, Charles Dwumfour Osei, David Kwao-Sarbah
The success of decentralization efforts in developing countries, such as Ghana, is closely tied to the capacity for robust infrastructure delivery at the local level, where local governments are mandated to drive development but often operate on shoestring budgets. This study critically examines the performance of Internally Generated Funds (IGF) collection in the Ahafo Ano-South West District in Ghana, with a specific focus on revenue trends from 2016 to 2022. Using time series data, the study applies the Corrected Revenue Collection Index (CRCI) to assess how well various revenue streams performed. The findings reveal a striking pattern where property rates emerged as the most consistent and high-performing source of IGF, while revenues from land royalties and administrative fees lagged significantly. Rental income from lands and buildings, and licenses, showed moderate but promising results. These disparities highlight the untapped potential within local revenue systems and point to key areas for reform and strategic investment. By offering new empirical insights, this study contributes meaningfully to the broader discourse on local government financing and sustainable development. It underscores the urgent need for improved revenue mobilization strategies and greater fiscal accountability to empower district assemblies in Ghana and similar contexts to deliver on their developmental mandates. Strengthening IGF collection is not just a financial necessity but a pathway to stronger and more self-reliant local governance. Keywords: Revenue mobilization, Internally generated fund, District Assembly, Local Government, Decentralization, Ghana.
Since the fiscal decentralization process began in 1980, territorial inequality among the poorest and richest regions of the Mexican Republic has grown. In this work, states are divided into two groups: Those that contribute more to the federal budget than they receive and are considered fiscally surplus, and those that contribute less and are in deficit. It is shown that the fiscal deficit of the poorest states has been able to be financed through oil revenues. However, this situation is not sustainable and to maintain the current levels of transfers to the most deficient regions, it will be necessary to squeeze more from the taxpayers of the richest states. Without a new fiscal pact between the states, demands for greater autonomy in the richest regions will increase, as has recently happened in other countries.
Fran Brahimi, Mariel Frroku, Skënder Uku, Emiljan Mustaqe
A significant part of the literature on fiscal decentralization confirms that the greater the ability of decentralized governments to adapt policies to local preferences and to be innovative in providing public services, the greater the potential for investments and economic growth. This paper examines the dynamic effects and relationship between own source revenues, unconditional transfers, and local public investments. Over the past decades, fiscal and financial decentralization in Albania has made steady progress. However, the increasing responsibilities of local governments have intensified the need to raise the share of local revenues and expenditures relative to GDP and increase revenue from unconditional transfers. Following the administrative-territorial reform, fiscal decentralization has dynamically evolved, boosting local public revenues and granting greater discretion in their use to meet community needs. The specific law on local self-government finances led to increases in both own revenue and revenue from unconditional transfers. Further reforms have improved local public finance management, including local budgeting reforms, enhanced transparency of tax collection and expenditure, and self-assessment and monitoring of local government's financial status. These modernization efforts related to local finances have yielded positive results regarding macroeconomic stability, fund predictability, and transparent use of public funds. Consequently, central and local governments prioritize public investments in infrastructure and sector revitalization in their budgets. Local public investments have risen annually, driven by increased local income from taxes and government transfers. This growth reflects the focus of local and central development policies on addressing infrastructure and logistical challenges. The consolidation of decentralization and stable central budget transfers have created favorable conditions for local governments to implement new policies enhancing service quality and public investment performance.
Understanding how central and local governments share resources and responsibilities is crucial for analyzing political and economic systems.Decentralization is not a one-size-fits-all solution for enhancing local government efficiency and responsiveness.While it was once believed to lead to better governance and civic engagement, fiscal challenges (such as vertical fiscal imbalances, soft budget constraints, and the flypaper effect) can undermine fiscal discipline and efficiency, potentially causing fiscal crises at the subnational level.This thesis examines fiscal decentralization and public finance in Brazil through three empirical essays.First, I explore the financial impacts of extreme weather events on local public finances in Brazil.The findings show that droughts do not significantly influence intergovernmental transfers, causing financial strain, while floods result in increased government grants.However, this financial boost does not lead to better spending on flood mitigation, indicating a moral hazard associated with reliance on higher-level government resources.Second, I investigate the impact of territorial divisions on local governments.The analysis, using voter turnout and financial data, shows that administrative divisions initially boost electoral engagement, though this effect fades over time.Territorial fragmentation also increases reliance on vertical transfers while raising expenditures without significantly affecting fiscal balance.Third, I evaluate the Program for the Modernization of Tax Administration (PMAT), which was designed to enhance local tax collection.This analysis shows that the program had no significant impact on tax collection, highlighting the ineffectiveness of modernization efforts aimed at reducing municipal reliance on intergovernmental transfers.
This study investigates redistributive spending in China’s governance system, focusing on fiscal decentralization, interjurisdictional competition, and land finance revenue. Using multilevel modeling of data from 283 prefectural cities and 2,862 county-level jurisdictions, it finds that interjurisdictional competition prioritizes developmental spending over redistributive services. No significant relationship is observed between fiscal capacity—measured by tax revenues or intergovernmental transfers—and redistributive expenditures. However, higher land finance revenues are positively linked to increased redistributive spending. The study attributes this development-oriented strategy to the cadre promotion system, where local officials advance their careers by achieving policy goals through competition for economic investments. By integrating land finance into the analysis of redistributive spending, this research highlights its implications for equity and sustainability. It underscores the urgent need for fiscal and social policy reforms to balance developmental priorities with equitable social welfare provision.
В. В. Мартиненко, Тетяна Коляда, Maryna Skoryk, Olga Sokolova · 6 authors
The article examines the impact of the financial autonomy of local governments on the implementation of the Sustainable Development Goals (SDGs) in Ukraine. The main objective of the study is to analyze the financial support of local budgets and their role in achieving key national and global development goals, such as poverty reduction, quality education, healthcare, reduction of inequality, etc. The paper also assesses how effectively decentralization contributes to increasing the financial autonomy of communities and how this affects their ability to independently allocate resources to address pressing socio-economic issues.The main results show that in the period 2015–2023, local budgets of Ukraine demonstrated a steady trend towards the growth of their own revenues, which had a positive impact on the financial autonomy of communities. The share of own revenues in total local budget revenues increased from 41% in 2015 to 68% in 2023. In addition, the expenditure coverage ratio of own revenues has also increased to over 68%, indicating that communities are increasingly able to finance their own needs. However, several problems have been identified, including an imperfect legislative framework, low institutional capacity, and a lack of specialists in local financial management.The findings of the study emphasize the importance of financial decentralization for the sustainable development of communities, especially in the context of martial law. Increased financial autonomy allows communities to respond more effectively to the challenges of the modern world, in particular by investing in local infrastructure, education, healthcare and the environment. At the same time, the authors emphasize the need to improve governance mechanisms further at the local level, as well as the importance of ensuring transparency and accountability of local governments. These measures are key to achieving the SDGs and improving the quality of life of the population.
This paper investigates the effect of fiscal decentralization on public finance performance for two levels of government on a panel of 33 developing economies from 2000 to 2020. Using the bias-corrected Least Square Dummy Variable estimator (LSDVC), we demonstrate that fiscal decentralization could enhance fiscal performance. The main findings are as follows: First, a larger share of decentralized expenditure is associated with a stronger central fiscal balance, but this effect diminishes with increased vertical fiscal imbalances (transfer dependency of subnational governments). The findings also show that vertical fiscal imbalances and revenue decentralization undermine fiscal positions at the central government level. At the sub-national level, we find a U-shaped relation between revenue autonomy (measured as the sub-national governments’ share of tax revenues) and sub-national budget deficits. Nonetheless, deficits of sub-national governments can be avoided through increased local accountability, for example, by having regional governments’ executive and legislative officials locally elected.
This study's main goal is to investigate how government spending affects Myanmar's economic growth, with an emphasis on fiscal decentralization and local governments' financial capabilities. Utilizing panel data collected spanning fifteen Myanmar regional states between 2000 and 2021, the study first used a fixed effects model before using quantile regression to confirm the findings' robustness. Secondary records supplied by the Budget Department and the Department of the Ministry of Planning and Finance served as the source of the data. The study's findings indicate that while labor and net exports have a negative impact on Myanmar's economic growth, financial decentralization, government spending, both decentralization and centralization, foreign direct investment, and the general populace all significantly and positively contribute to economic growth. Nonetheless, there is a statistically significant positive interaction between fiscal decentralization and government spending that results in economic growth. Government expenditure, decentralization for economic growth, and recommendations all play a major role in developing policies aimed at reducing poverty. This area has demonstrated its effectiveness in reducing poverty in Myanmar's regional states by providing aid to low-income or employed individuals who lack access to financial resources. Finally, by advancing understanding of regional supervisory skills beyond certifications, the government may use local expenditures as well as fiscal decentralization to improve development competitiveness, thus promoting regional autonomy and revolutionizing national economies.
Spatial economics deals with the mutual socioeconomic influence of the geographical boundary of an administrative body on the neighboring entities- municipalities, districts, states, and countries. Researchers have conducted spatial analyses to solve a variety of economic problems like labor dynamics, wage equilibrium, capital formation, and demographic agglomeration/dispersion, among others. However, the application of spatial economics in public finance, despite being a pressing priority, has not been extensively explored. With India being the largest democracy in the world and having a decentralized state budget mechanism in place, focused attention is required to measure the contiguity effect in state finance. I find strong spatial dependence by implementing a fixed effect panel regression design followed by a spatial regression approach to assess fiscal health in Indian states over 22 years. The analysis reveals spatial dependence on both the income and expenditure sides of state budgetary fiscal and primary deficits. I also analyze the dynamics of the capital budget revenue and its idiosyncrasies in determining the spatial roles that govern state deficits. The empirical results underscore that fiscal policymaking through budget preparation for an Indian state must account for major fiscal components of bordering states to achieve targeted fiscal objectives.
Joseph Mamman, Muhammad Bashir Abdullahi, Oluwaseun Adeniyi Ojerinde
Background/Aim: Tax compliance remains a significant challenge for governments worldwide, as traditional VAT and income tax systems are often inefficient, prone to fraud, and administratively complex. Blockchain technology presents a potential solution by offering transparency, immutability, and decentralization, which can enhance tax compliance processes. This study explores the application of public and private blockchain configurations in tax administration, evaluating their effectiveness in fraud prevention, operational efficiency, and regulatory adaptability. The aim is to determine the comparative advantages and limitations of these blockchain models in VAT and income tax compliance and propose a framework that optimizes their integration into existing tax systems. Methods: A comparative analysis of public and private blockchain configurations was conducted, focusing on key performance metrics such as fraud reduction, cost efficiency, transparency, data privacy, and compliance accuracy. Public blockchains, such as Ethereum with IPFS, were assessed for their role in real-time invoice verification and VAT compliance, while private blockchains, such as Hyperledger Fabric, were evaluated for their secure handling of income tax data. The study also examines regulatory challenges, interoperability issues, and technological constraints affecting blockchain adoption in tax administration. Results: The findings indicate that public blockchains significantly enhance transparency and fraud detection, reducing invoice fraud by 90% and lowering administrative costs by 85%. However, their limited data privacy raises concerns for transactions involving sensitive financial information. In contrast, private blockchains prioritize data security and controlled access, ensuring 95% data privacy and 88% compliance accuracy in income tax reporting. Despite these advantages, private blockchains incur higher operational costs and require robust governance mechanisms for effective implementation. The study also identifies regulatory uncertainty, interoperability with existing tax infrastructures, scalability constraints, and technological complexity as key barriers to blockchain adoption in tax compliance. Conclusion To maximize the benefits of blockchain in tax administration, a hybrid blockchain framework is recommended, combining public blockchain transparency for VAT compliance with private blockchain security for income tax management. Policymakers must establish clear regulatory frameworks, invest in scalable digital infrastructure, and promote system interoperability to facilitate adoption. A phased implementation strategy, incorporating pilot programs, public-private partnerships, and targeted policy incentives, is crucial for a smooth transition to decentralized tax compliance. Future research should explore cross-border blockchain tax models, AI-driven fraud detection, and the economic implications of blockchain-based tax compliance to further enhance the effectiveness of this technology in global tax governance.