Global%20Experience%20and%20Framework%20for%20Decentralization%20%20Roy%20Bahl%20Dean,%20and%20Professor%20of%20Economics%20Georgia%20State%20University%20(rbahl@gsu.edu) - PowerPoint PPT Presentation

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Global%20Experience%20and%20Framework%20for%20Decentralization%20%20Roy%20Bahl%20Dean,%20and%20Professor%20of%20Economics%20Georgia%20State%20University%20(rbahl@gsu.edu)

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Autonomy v. Backdoor Approaches. Poor Service Delivery. Why Decentralization. 3 ... 1. Intergovernmental Fiscal Relations (Fiscal Decentralization) is a system, and ... – PowerPoint PPT presentation

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Title: Global%20Experience%20and%20Framework%20for%20Decentralization%20%20Roy%20Bahl%20Dean,%20and%20Professor%20of%20Economics%20Georgia%20State%20University%20(rbahl@gsu.edu)


1
Global Experience and Framework for
Decentralization Roy Bahl Dean, and Professor
of EconomicsGeorgia State University(rbahl_at_gsu.e
du)
  • Decentralization and Intergovernmental
  • Fiscal Reform
  • Sponsored by the Decentralization Thematic Group,
    PRMPS and WBI
  • Washington, DC
  • 29-31 March 2004

2
Why Decentralization
  • Economic Development
  • Elected Government
  • Inefficient Centralization
  • Uniformity Not Acceptable
  • Local Government Capacity
  • Autonomy v. Backdoor Approaches
  • Poor Service Delivery

3
The Arguments for Fiscal Decentralization
  • Moves Government closer to the People
  • Can improve Revenue Mobilization
  • Better Size Distribution of Cities

4
Can Local Governments Capture these Benefits?
  • Elected Councils
  • Chief Local Officers
  • Local Taxing Powers
  • Significant Expenditure Responsibility
  • and Autonomy
  • Adequate Tax Administrative Capacity

5
The Arguments for Fiscal Centralization
  • Macroeconomic Control, Stabilization
  • Policy
  • Direction of Investment in Social
  • Overhead
  • Equalization Potential
  • Central Competence and Honesty
  • Reduces Central Bureaucratic Control

6
Do Countries Decentralize?
  • Empirical Evidence
  • Determinants
  • Industrialization
  • Economic Development
  • Size
  • Diversity
  • War

7
7
8
How To Do Decentralization
  • 12 Rules For Implementation

8
9
Rules
  • 1. Intergovernmental Fiscal Relations (Fiscal
    Decentralization) is a system, and all of the
    pieces must fit together.

10
What Is Fiscal Decentralization
  • Expenditure Assignment / Autonomy
  • Revenue Raising Powers
  • Borrowing Powers
  • Local Elected Councils
  • Civil Service Rules
  • Fiscal Relations Among Governments

11
Rules (Contd)
  • 2. First, fix the assignment of expenditures,
    then assign revenues in amount that will
    correspond to the expenditure needs.

12
Rules (Contd)
  • 3. Begin fiscal decentralization with a strong
    central ability to monitor.

13
Rules (Contd)
  • 3. Begin fiscal decentralization with a strong
    central ability to monitor.

14
Rules (Contd)
  • 4. One system will not fit the urban and rural
    sectors.

15
Rules (Contd)
  • 5. Accountability of local government
    officials requires significant local
    fiscal autonomy. Urban local
    governments must have some taxing
    powers.

16
What Is A Good Tax?
  • Adequate
  • Elastic
  • Equitable
  • Administratively Feasible
  • Neutral
  • Politically Acceptable

17
What Makes A Good Local Tax?
  • Adequate, Significant Revenue Yield
  • Stability of Revenue Yield
  • Correspondence Between Revenue Burden
  • Administrative Feasibility

18
How Should Revenues Be Assigned?
  • Value Added Tax
  • Foreign Trade Taxes
  • Business Income Tax
  • Individual Income Tax
  • Excises
  • Retail Sales Tax
  • Motor Vehicles
  • Property Tax
  • User Charges
  • Borrowing
  • Commercial Ventures

19
The Property Tax Advantage
  • Revenue
  • Local Burden
  • Not Regressive
  • Benefit Tax
  • Land Use Effects
  • The Devil We Know

20
The Property Tax Disadvantages
  • Little Revenue
  • Difficulty And Costly Administration
  • Judgmental Assessment
  • Tax On Unrealized Income
  • Visible
  • Difficult To Enforce

21
Rules (Contd)
  • 6. The central government must honor its
    commitment to decentralization by following the
    rules it makes.

22
Rules (Contd)
  • 7. Keep it simple. Precision in tax
    administration and grant distribution is probably
    not possible in most cases.

23
Rules (Contd)
  • 8. Grants and shared taxes must play an important
    role in almost any decentralized fiscal system in
    a developing or transition country. Transfers may
    be designed as more centralized or more
    decentralized.

24
Rules (Contd)
  • 9. There is an intraprovince dimension to
    intergovernmental fiscal relations and this
    should be taken into account in planning the
    system.

25
Rules (Contd)
  • 10.Impose a hard budget constraint.

26
Rules (Contd)
  • 11. Recognize that intergovernmental systems are
    always in transition, and plan for this.

27
Rules (Contd)
  • 12. There must be a champion.

28
The Champions of Fiscal Decentralization
Potentially Strong Supporters Comments
The People and their elected representatives Demand for more participation in governance at the local level.
The President Decentralization is a popular policy with the electorate. However, the President must also be very mindful of stabilization concerns with the decentralization, since inflation and unemployment are usually the greatest danger to his/her political standing.
The Parliament or Congress Decentralization is a popular policy with the electorate. Parliament would like to identify with specific local projects they could bring home, therefore, they will favor a less transparent and less structured system.
28
29
The Champions of Fiscal Decentralization (Contd)
Potentially Strong Supporters Comments
Urban Local Governments Give us the autonomy to tax and spend. Urban local governments are often most concerned with how their autonomy is circumscribed, and how their access to their tax base is limited.
External Donors This provides encouragement and some technical assistance to get the process underway, but is no substitute for an in-country champion.
29
30
The Champions of Fiscal Decentralization (Contd)
Potentially Weak Supporters Comments
Ministry of Finance Would propose strict limits to decentralization in order to hold the main fiscal tools for stabilization policy purposes.
Ministry of Economy Would like to control the type of investment made, as well as the regional distribution of investment. Typically interested in programs with big externalities versus local benefit programs.
Line Ministries Delivery, and often would like to hold an approval or sign-off power.
30
31
The Champions of Fiscal Decentralization (Contd)
Ambivalent Supporters Comments
Ministry of Local Government Would favor a greater guaranteed share for local governments, but would like to control the distribution of those resources.
Weaker local governments Would like a guaranteed transfer of resources from the urban and wealthier local governments to the rest. More interested in a transfer system than in a local taxing system.
31
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