Title: Global%20Experience%20and%20Framework%20for%20Decentralization%20%20Roy%20Bahl%20Dean,%20and%20Professor%20of%20Economics%20Georgia%20State%20University%20(rbahl@gsu.edu)
1Global 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
2Why Decentralization
- Economic Development
- Elected Government
- Inefficient Centralization
- Uniformity Not Acceptable
- Local Government Capacity
- Autonomy v. Backdoor Approaches
- Poor Service Delivery
3The Arguments for Fiscal Decentralization
- Moves Government closer to the People
- Can improve Revenue Mobilization
- Better Size Distribution of Cities
4Can Local Governments Capture these Benefits?
- Elected Councils
- Chief Local Officers
- Local Taxing Powers
- Significant Expenditure Responsibility
- and Autonomy
- Adequate Tax Administrative Capacity
5The Arguments for Fiscal Centralization
- Macroeconomic Control, Stabilization
- Policy
- Direction of Investment in Social
- Overhead
- Equalization Potential
- Central Competence and Honesty
- Reduces Central Bureaucratic Control
6Do Countries Decentralize?
- Empirical Evidence
- Determinants
- Industrialization
- Economic Development
- Size
- Diversity
- War
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8How To Do Decentralization
- 12 Rules For Implementation
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9Rules
- 1. Intergovernmental Fiscal Relations (Fiscal
Decentralization) is a system, and all of the
pieces must fit together.
10What Is Fiscal Decentralization
- Expenditure Assignment / Autonomy
- Revenue Raising Powers
- Borrowing Powers
- Local Elected Councils
- Civil Service Rules
- Fiscal Relations Among Governments
11Rules (Contd)
- 2. First, fix the assignment of expenditures,
then assign revenues in amount that will
correspond to the expenditure needs. -
12Rules (Contd)
- 3. Begin fiscal decentralization with a strong
central ability to monitor. -
13Rules (Contd)
- 3. Begin fiscal decentralization with a strong
central ability to monitor. -
14Rules (Contd)
- 4. One system will not fit the urban and rural
sectors. -
15Rules (Contd)
- 5. Accountability of local government
officials requires significant local
fiscal autonomy. Urban local
governments must have some taxing
powers. -
16What Is A Good Tax?
- Adequate
- Elastic
- Equitable
- Administratively Feasible
- Neutral
- Politically Acceptable
17What Makes A Good Local Tax?
- Adequate, Significant Revenue Yield
- Stability of Revenue Yield
- Correspondence Between Revenue Burden
- Administrative Feasibility
18How 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
19The Property Tax Advantage
- Revenue
- Local Burden
- Not Regressive
- Benefit Tax
- Land Use Effects
- The Devil We Know
20The Property Tax Disadvantages
- Little Revenue
- Difficulty And Costly Administration
- Judgmental Assessment
- Tax On Unrealized Income
- Visible
- Difficult To Enforce
21Rules (Contd)
- 6. The central government must honor its
commitment to decentralization by following the
rules it makes.
22Rules (Contd)
- 7. Keep it simple. Precision in tax
administration and grant distribution is probably
not possible in most cases.
23Rules (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.
24Rules (Contd)
- 9. There is an intraprovince dimension to
intergovernmental fiscal relations and this
should be taken into account in planning the
system.
25Rules (Contd)
- 10.Impose a hard budget constraint.
26Rules (Contd)
- 11. Recognize that intergovernmental systems are
always in transition, and plan for this.
27Rules (Contd)
- 12. There must be a champion.
28The 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.
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29The 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.
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30The 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.
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31The 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.
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