This book deals with two issues. The first concerns the various measurement of fiscal decentralization in general and their usefulness for policy analysis. The second and more specific issue concerns the taxonomy of intergovernmental grants and the limits of the current classifications.
The typical post-Bretton Woods era development approach that emphasized central government-led development efforts has changed dramatically, and local governments have clearly emerged as players in development policy. The thinking about what is important to achieve in development objectives is changing as fiscal decentralization reforms are being pursued by many countries around the world. In this context, a number of studies have attempted to quantify the impact of decentralization by relating some measure of it to economic outcomes of fiscal stability, economic growth, and public sector size. But decentralization is surprisingly difficult to measure. Nearly all cases examining the relationship between decentralization and macroeconomic performance have relied on the Government Finance Statistics (GFS) of the International Monetary Fund. However, despite its merits, GFS falls short in providing a full picture of fiscal decentralization. For some countries, however, there is data that more accurately captures fiscal responsibilities among different types of governments.
This paper explores the impact of fiscal decentralization on fiscal policy performance in a large sample of advanced and developing economies. The findings suggest that a larger share of decentralized expenditure is associated with a stronger fiscal balance; however, fiscal decentralization can lead to more pro-cyclical fiscal policy. Thus, the design and pace of fiscal decentralization need to be tailored to the specificities of the economy. Countries that have already established strong accountablity and budget management capacity at the local level can benefit from fiscal decentralization. In contrast, in economies prone to large volatility from internal and external shocks, the central government may need to retain a sufficient share of expenditure and revenue to conduct counter-cyclical policies. Finally, the pace of expenditure and revenue decentralization should be aligned.
This book examines the impacts of fiscal decentralization reforms on the efficiency of local governments in Central and Eastern European (CEE) countries. By offering a comparative perspective and by applying econometric methods and regression models, it analyses various reform trajectories and their effects on individual CEE countries. Furthermore, the book discusses input and output indicators for evaluating the efficiency of municipalities. Readers will learn about the common features of these countries, the impact of path dependence, and future prospects for decentralization reforms. In closing, the book discusses modern management and administration methods, opportunities for cooperation between municipalities, co-creative service delivery, and other measures that could improve the efficiency of public service provision.
This paper explores the impact of fiscal decentralization on the efficiency of public service delivery. It uses a stochastic frontier method to estimate time-varying efficiency coefficients and analyzes the impact of fiscal decentralization on those efficiency coefficients. The findings indicate that fiscal decentralization can improve the efficiency of public service delivery but only under specific conditions. First, the decentralization process requires adequate political and institutional environments. Second, a sufficient degree of expenditure decentralization seems necessary to obtain favorable outcomes. Third, decentralization of expenditure needs to be accompanied by sufficient decentralization of revenue. Absent those conditions, fiscal decentralization can worsen the efficiency of public service delivery.
This book draws on experiences in developing countries to bridge the gap between the conventional textbook treatment of fiscal decentralization and the actual practice of subnational government finance. The extensive literature about the theory and practice is surveyed and longstanding problems and new questions are addressed. It focuses on the key choices that must be made in decentralizing, on how economic and political factors shape the choices that countries make, and on how, by paying more attention to the need for a more comprehensive approach and the critical connections between different components of decentralization reform, everyone involved might get more for their money.
This book brings together academics and practitioners to address key aspects of intergovernmental fiscal relations and country experience, as they relate to inclusive growth.