commission on fiscal imbalance 合集

If a local government were to undertake an aggressive

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Unformatted text preview: need to be further developed. 2.3. Equity Equity aspect of a public finance policy concerns with the redistribution of income to achieve a socially just outcome. In its classical definition, redistribution typically implies a transfer of funds to low-income households to achieve more equal distribution of income. In decentralization context, the issue of redistribution has two dimensions: horizontal and withinlocality equity. Horizontal equity refers to the extent which subnational governments have the capacity to deliver an equivalent level of services. There are two major factors contributing horizontal inequalities: taxes bases vary significantly from region to region and regional characteristics affect the cost of service provision. In addressing horizontal inequalities redistribution policies are designed to provide more resources to poorer regions. Equalization grant, discussed in the fifth section, is the commonly used tool to correct for horizontal inequalities in most fiscally decentralized systems. However, providing more resources to poor regions addresses only one aspect of the equity problem. Success in redistribution policies requires special attention to within-locality equity. In designing redistributive policies subnational governments need to be supported by the central government. Otherwise, subnational governments cannot effectively carry out redistributive policies. The potential mobility of households places real constraints on the capacity of decentralized governments to employ redistributive policies. If a local government were to undertake an aggressive program to redistribute income, it would create compelling incentives for low-income people to immigrate into the jurisdiction and for high-income people to move elsewhere. Nevertheless, there is certainly scope for local governments in engaging fight against poverty. In fact, some even argue that local governments are more concerned with poverty and by the nature of their business their actions have redistributive impacts. For example, Pauly (1973) makes the point about greater concern for poverty in a locality than in other places. Furthermore, Sewell (1996) argues that the regulatory power of subnational governments, such as land use, rent controls, user charges, has profound distributional implications. 155 Commission on Fiscal Imbalance 2.4. Political Dimension of Fiscal Decentralization Institutions of accountability and participation are the key to the success of decentralized decision making. In decentralized systems, local governments' proximity to their constituents will enable them to respond better to local needs and efficiently match public spending to private needs. This entails establishing institutions and mechanisms for citizens voice and exit. Regular elections, local referendums, permanent councils and other institutional structures are some of the easily identifiable and effective tools that may improve the ability of local governments to identify and act on citizen preferences in a decentralized setting. Issue and project-specific mechanisms for enhancing the flow of information between decision...
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This note was uploaded on 03/06/2013 for the course ECON 220 taught by Professor Paulo during the Spring '13 term at University of Liverpool.

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