The reform of intergovernmental fiscal relations in developing and emerging market economies

Abstract

No AccessStand Alone Books1 Feb 2013The reform of intergovernmental fiscal relations in developing and emerging market economiesAuthors/Editors: Anwar ShahAnwar Shahhttps://doi.org/10.1596/0-8213-2836-0SectionsAboutPDF (0.6 MB) ToolsAdd to favoritesDownload CitationsTrack Citations ShareFacebookTwitterLinked In Abstract:An important dimension of public sector reform in developing and emerging market economies has been the loosening of central control over the private sector and lower level governments. The author's overview of the principles and best practices of fiscal federalism should help guide policy debates on restructuring intergovernmental fiscal arrangements. Strong emphasis on central planning impedes innovative responses to local issues by local governments and stymies private sector development. Decentralization should be the rule, the author argues, unless a strong case can be made for centralizing specific responsibilities. Local public services can be provided more efficiently if expenditures more closely match local needs and preferences. More closely linking benefits to costs also promotes accountability. Increased fiscal autonomy can also help mobilize more revenue from local sources, improving a country's fiscal position. And decentralized desicion-making encourages local participation in development. Constitutional responsibilities should be stated clearly and precisely. Tax and spending assignments should be determined simultaneously, so revenue means are matched as closely as possible to spending needs at each level of government. In most developing countries, subnational governments have limited access to their own tax bases and depend on higher level transfers. A grant's design should reflect the situation and objectives. The author gives examples. Although most countries give a high priority to limiting interregional fiscal disparities, no developing or transitional economy has adopted an explicit standard for equalization. Revenue sharing should be supplemented by an equilization program with a specified standard rather than by combining several factors into one formula. Local borrowing to meet capital expenditures is a major issue in most developing countries. In such cases, autonomous bodies can supervise and assist local borrowing for capital projects. The decentralization of responsibilities and the rationalization of intergovernmental transfers should be supported by strengthening local institutional capabilities. Monitoring, auditing, and inspections functions in most developing nations especially need to be strengthened. Transitional economies also need to give high priority to establishing or improving framework laws on property rights, corporate legal ownership and control, and bankruptcy, and financial accounting and control. FiguresreferencesRecommendeddetailsCited byRevenue Sharing from Natural Resources: Principles and Practices22 February 2023Managing transitions for sustainable economic development in post-COVID world: do fiscal and monetary support matter?Economic Research-Ekonomska Istraživanja, Vol.35, No.12 February 2022LOCAL FINANCIAL AUTONOMY AS A PREREQUISITE FOR IMPROVING THE PROVISION OF PUBLIC SERVICES AND GOODS: THE CASE OF THE REPUBLIC OF MOLDOVABaltic Journal of Economic Studies, Vol.8, No.530 December 2022A review of Ireland's Local Property TaxAdministration, Vol.70, No.424 December 2022Spatial interdependence and spillovers of fiscal grants in Benin: Static and dynamic diffusionsWorld Development, Vol.158Fiscal Decentralization and Fiscal Multiplier in ChinaThe B.E. Journal of Macroeconomics, Vol.22, No.218 November 2021Inequality of Intergovernmental Transfer of Value Added TaxesThe Journal of Planning and Budgeting, Vol.27, No.11 May 2022Decentralization Can Improve Equity, but Can It Be Sustained?Health Systems & Reform, Vol.8, No.16 June 2022Indirect Federal Subsidy and Tax Exportation through State and Local Tax Deduction: Understanding the Impact of the 2017 Tax Reform on State and Local GovernmentsPublius: The Journal of Federalism, Vol.52, No.13 August 2021Key Principles of Fiscal Decentralization17 November 2021Ethiopia: Ugly Mathematical Unit Cost Fiscal Equalization Formula; Beautiful FindingsInternational Journal of Business and Management Research, Vol.9, No.13 March 2021Rwanda: Lessons from Applied Intergovernmental Fiscal Equalization FormulaInternational Journal of Business and Management Research, Vol.8, No.430 December 2020Fiscal stability during the Great Recession: putting decentralization design to the testRegional Studies, Vol.54, No.724 July 2019Evaluating the Conditionality of External Development Assistance Programs3 November 2020Evaluation of Decentralization Programs3 November 2020Local governance in Switzerland: Adequate municipal autonomy cumintergovernmental cooperation?Cogent Social Sciences, Vol.6, No.113 May 2020EFFECTS OF FEDERAL CONSTITUTIONAL GRANTS IN BRAZILIAN MUNICIPALITIESReview of Urban & Regional Development S