Unformatted text preview: set.
The Government Finance Statistics (GFS), which has consistent definitions across some countries over time, is the only
existing source of data for worldwide cross-country analysis of fiscal decentralization and public finance. Although, GFS
is the most widely available internationally comparable data source on subnational finances, it is not an ideal data set for
measuring fiscal decentralization. The need to standardize fiscal variables in GFS inevitably leads to a loss of details.
For example, although GFS provides a breakdown of expenditures by function and economic type, it is silent about
expenditure autonomy. Thus, expenditures that are mandated by the central government appear as subnational
expenditure in the GFS. Similarly, on revenue side, the GFS contains information about tax and non-tax revenues,
intergovernmental transfers, and other grants, but it does not distinguish whether taxes are collected through shared
taxes, piggybacked taxes, and locally determined "own-source" taxes, or what proportion of intergovernmental transfers
is conditional as opposed to general purpose transfers.
Although the expenditure share of subnational governments in total government spending is an imperfect measure of
fiscal decentralization, in the absence of an appropriate indicator, economists commonly use the percentage share of
subnational governments expenditure in total government expenditure as a representative of fiscal decentralization.
Figure 2 shows the degree of fiscal decentralization, measured as the percentage share of subnational governments
expenditure in total government spending, for those countries reported subnational statistics in 1998. In general,
subnational governments (intermediate plus local) in federal countries have executed higher portion of total government
spending than their counterparts in unitary countries. In 1998, the average subnational share of expenditures is 38% for
federal countries and 22% for unitary countries. 1.2. Generalizations About Decentralization
The government structure in any country is unique reflecting the historical, social, and cultural evolution of the society.
The differences in the structure of government are a natural consequence of these factors. Despite such differences, the
structure of intergovernmental financial system in many countries exhibits certain broad patterns, such as the existence
of inadequate "own resources"5 of subnational governments to finance the expenditure functions, the heterogeneity of
subnational governments, and the lack of subnational autonomy to levy taxes that are capable of yielding enough
revenue to meet local needs (Bird, 1995).
First, subnational governments don't have adequate level of "own resources." The revenues under direct control of local
governments invariably less than their expenditures in most countries. Due to lack of data for own source of revenues,
Table 1 presents local governments' revenues as a percentage of their expend...
View Full Document