Art-decentralization fiscal-mayo 30 2014 (original) (raw)

Fiscal Decentralization and Governance

Public Finance Review, 2012

The literature on the economics of fiscal decentralization stresses the potential for both positive and negative effects on governance in a country. Using a data set comprising sixty-four developed and developing economies and several different measures of fiscal decentralization, the authors find that countries in which a larger share of fiscal revenues and expenditures are located at the level of subnational governments appear to be less corrupt. The authors also find that the beneficial impact of fiscal decentralization on corruption is mitigated in the presence of mechanisms enforcing vertical administrative decentralization. The results indicate that fiscal decentralization appears to reduce corruption even in countries in which there is a high degree of political representation. The results are robust to alternative estimation methodologies and to specifications that control for the influence of variables that have been identified as affecting governance.

On the Measurement and Impact of Fiscal Decentralization

2002

The typical post-Bretton Woods era development approach that put much emphasis on central government-led development efforts has changed dramatically, and local governments have now clearly emerged as players in development policy. Now, the thinking about what is important to achieve development objectives is changing and many countries around the world are now pursuing fiscal decentralization reforms. Within this context a number of studies attempted to quantify the impact of decentralization by relating some measure of decentralization to the economic outcomes of fiscal stability, economic growth, and public sector size. However, decentralization is surprisingly difficult to measure. In nearly all cases those examining the relationship between decentralization and macroeconomic performance have relied on the Government Finance Statistics (GFS) of the IMF. However, despite its many merits, GFS falls short of providing a full picture of fiscal decentralization. For some countries, however, data that more accurately capture fiscal responsibilities among different types of governments are available.

THE IMPACT OF FISCAL DECENTRALIZATION: A SURVEY

In this paper we offer a comprehensive and updated review of the impact of fiscal decentralization on the economy, society and politics. We start with the examination of two crucial and yet unsolved issues in the literature on decentralization: its proper measurement and the potential endogeneity of fiscal decentralization with many of the variables of interest we are trying to investigate. Then we discuss the main findings in the existing literature on the effects of decentralization on a relevant list of socio-economic variables. The impact of fiscal decentralization reforms on political institutions is also considered. Complete answers to the many questions on the impact of fiscal decentralization are not likely to be certain but overall there are reasons to be optimistic about the overall positive impact of the decentralized systems that have been introduced all over the world in the past several decades. The survey offered in this paper by necessity has to be selective but it p...

Managing Fiscal Decentralization

Routledge Studies in the Modern World Economy, 2002

There is a danger that decentralization may be perceived by policy makers, especially donors, as the latest mantra-the magic potion to cure many governance problems. Decentralization is being promoted by well meaning interest groups, often reacting to highly centralized regimes, as well as by influential international agencies, particularly the staff in the multilateral banks. But does it work? What are the essential preconditions for the success of decentralization? These issues are addressed in this volume, with a set of general papers, followed by case studies of countries in particular regions-the European Union (EU); transition economies including China, and major developing countries in Latin America, Africa and Asia. The case studies are designed to present a practitioners' perspective drawing on the experiences of officials from the concerned countries, or staff from the OECD, the World Bank and the IMF, who have been engaged in providing direct advice to particular countries (often in conjunction with the officials of the concerned countries). Countries often initiate the administrative or political process of decentralization, without due regard to the fiscal consequences. The questions raised in the country papers concern the sequencing of fiscal decentralization so as to ensure effective governance and public service delivery, without endangering macroeconomic stability. General issues The potential dangers of decentralization Tanzi, in Chapter 2, poses some unfashionable personal views. He argues that if countries are not already committed to decentralization, they should consider alternatives to it and its potential pitfalls. Often decentralization is seen as a response to failed policiesthe solution may be to improve the current policies, such as skewed or inefficient spending. Often privatization, and reducing the role of the state may be a preferable alternativewith a smaller government, there may be less or little to decentralize. In the extreme, if local preferences dominate especially in very large countries, then breaking them into smaller states may well be a solution. This has happened as in Yugoslavia and Czechoslovakia. In any case, the potential dangers posed by decentralization should be clearly recognized-the growth in regulations, the impediments created to an effective internal market, and the likelihood that corruption might increase. Moreover, with the difficulty in clearly separating expenditure responsibilities, and the economies of scale in tax

When is Fiscal Decentralization Good for Governance?

Publius: The Journal of Federalism, 2009

Many developing countries are seeking to improve governance with fiscal decentralization. It is therefore worth revisiting what we know about political and economic institutions to understand how and under what circumstances decentralization can be beneficial. In an effort to do that, I review past research on the governance implications of devolving power to subnational authorities. Based on this review, I find that the gains from decentralization depend sensitively on how subnational authorities and intergovernmental relations are structured. I therefore conclude the paper by drawing nine lessons from theory and experience to help improve the design of decentralized institutions.

The impact of fiscal decentralization on economic development

Investment Management and Financial Innovations, 2019

In this article, updated approach to assess the impact of fiscal decentralization on economic development is offered. The relationship between the proper level of fiscal decentralization and economic growth for 27 advanced and emerging economies in Europe from 1992 to 2017 was evaluated using panel data. In the EU members, Belarus, Georgia and Ukraine expenditures decentralization was more essential than revenue decentralization. The vast majority of the counties from Central and Eastern Europe have increased the level of fiscal decentralization since 1992. It was found that revenue decentralization was associated with lower growth rates, while expenditures decentralization could slightly encourage economic development. The overall decentralization indicator adversely affected the growth, but that interconnection was not robust. The empirical investigation showed significant role of demographic structure and sustainability to ensure economic development. The authors propose the stat...

Fiscal Decentralization And Fiscal Performance

Policy Research Working Papers, 2005

A resurgence of recent interest in fiscal federalism has been a source of concern among macro stabilization experts. They argue that a decentralized fiscal system poses a threat to macro stability as it is incompatible with prudent monetary and fiscal management. This paper addresses these concerns by taking a simple neo-institutional economics cum econometric analysis perspective. This analysis enables the paper to conclude that, contrary to a common misconception, fiscal decentralization is associated with improved fiscal performance and better functioning of internal common market Fiscal policy coordination represents an important challenge for federal systems. In this context, fiscal rules and institutions provide a useful framework but not necessary a solution to this challenge. Fiscal rules binding on all levels can help sustain political commitment in countries having coalitions or fragmented regimes in power. Coordinating institutions help in the use of moral suasion to encourage a coordinated response. Industrialized countries experiences also show that unilaterally imposed federal controls and constraints on sub-national governments typically do not work. Instead, societal norms based on fiscal conservatism such as the Swiss referenda and political activism of the electorate play important roles. Ultimately capital markets and bond-rating agencies provide more effective discipline on fiscal policy. In this context, it is important not to backstop state and local debt and not to allow ownership of the banks by any level of government. Transparency of the budgetary process and institutions, accountability to the electorate and general availability of comparative data encourages fiscal discipline. Fiscal decentralization poses significant challenges for macroeconomic management. These challenges require careful design of monetary and fiscal institutions to overcome adverse incentives associated with the "common property" resource management problems or with rent seeking behaviors. Experiences of federal countries indicate significant learning and adaptation of fiscal systems to create incentives compatible with fair play and to overcome incomplete contracts. This explains why that decentralized fiscal systems appear to do better than centralized fiscal systems on most aspects of monetary and fiscal policy management and transparent and accountable governance.

The pillars of fiscal decentralization

2008

Fiscal decentralization can de be defined as the process of transferring budgetary authority from central government to elected subnational governments in order to grant them power to make decisions regarding taxes and expenses. This paper discusses, theoretically and empirically, what some consider the three pillars of fiscal decentralization: expenditure assignment, revenue assignment, and intergovernmental transfers. In the real world, almost all countries have these three pillars. However, there are no two countries alike because of the different possibilities at hand in designing a decentralized fiscal framework. Here, the international experience is studied to shed some light on the various institutional and practical issues arising in the design and implementation of fiscal decentralization. Not surprisingly, results vary widely, and this experience suggests that there are different ways of achieving a successful framework. Therefore, this paper intends to point and describe ...

What Drives Fiscal Decentralisation?

2000

This paper investigates the determinants of fiscal decentralisation, focusing in particular on the impact of the level of income on the level of fiscal decentralisation. Various measures of fiscal decentralisation, several of them novel in this context, are employed in a cross-country econometric model to test established and more recent hypotheses. Paying careful attention to variable measurement, model specification and

Fiscal decentralization: theory as reform

2003

The last decade has seen a renewed interest in the concept of fiscal decentralization or fiscal federalism. This comes after a half-century of fiscal centralization in most developed and developing nations. This paper examines the theory behind fiscal decentralization and suggests the reasons for its renewed popularity. Two countries are examined in some detail: Brazil, which moved in this direction after their constitutional reform of 1988; and China, which is currently considering a policy change in this direction. Lessons from those two countries and comparisons with some other developed and developing nations are provided. The author concludes that fiscal decentralization provides promise for those nations wishing to encourage their subnational governments to assume additional responsibilities. However, special attention must be given to implementation issues, especially methods of dealing with fiscal inequities.