commission on fiscal imbalance 合集

The countries that undertake a comprehensive review

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Unformatted text preview: to perform their assigned functions. Figures 11 through 15 present the importance of intergovernmental transfers in the composition of subnational governments' revenue structure across regions. There are different forms of transfer mechanism: sharing revenues and tax bases, establishing conditional or unconditional grant systems. Central government and subnational governments can share revenues based on a formula or share a tax base by one of them applying a surcharge on other’s tax. In the case of establishing grant system, conditional grants require matching elements by recipient government but unconditional grants are given to recipient government with full discretion to spend. The choice of transfer mechanism depends on the objectives of the intergovernmental policies. If the only concern of the intergovernmental system is to address vertical fiscal gap, this could be achieved either by revenue sharing or by “gap-filling” unconditional grants. The horizontal imbalances can be alleviated with equalization transfers from the central government to subnational government. However, in practice, measuring the horizontal imbalance and relative fiscal capacities of subnational governments is very difficult task and only very few countries review them. The countries that undertake a comprehensive review of horizontal balances are Australia, Canada, and Germany (Ahmad and Craig, 1997). 166 Commission on Fiscal Imbalance FIGURE 10 VERTICAL IMBALANCE BY REGION 70% 60% 50% 40% 30% 20% 10% 0% Sub-Saharan Africa (2) East Asia and the Pacific (6) Latin America and the Caribbean (9) Europe and Central Asia (15) High Income, OECD (20) South Asia (1) Note: Measured as transfers to sub-national governments as a share of sub-national expenditures. Simple average of most recent observations in available countries. Numbers in parenthesis indicate number of countries represented. Source: International Monetary Fund. Government Finance Statistics Year Book 1998, Country Tables. The intergovernmental transfer system of a country usually has diverse objectives to meet and in most cases, these objectives may need to be met through a combination of policy tools. According to Ahmad and Craig (1997), there are three different policy responses to establishing the link between vertical and horizontal balances: 1. Correct each imbalance by separate policy measures: The vertical imbalance at each level is resolved by taxsharing or grant arrangements. Horizontal imbalances are then resolved by payments from regions with higher fiscal capacity to poorer regions. This is the approach used in Germany. 2. Implement an integrated system of equalization grants: The vertical and horizontal imbalances are dealt with simultaneously through a system of grants, including equalization payments and special purpose grants. This is the Australian and Canadian approach. 3. Correct only the vertical imbalance and ignore horizontal balance: As under the first option, vertical balances are resolved by tax sharing and grants, but no action is taken to correct horizontal imbalances. Capital and labor migration then responds, not only to earned income differentials, but also to the regional net fiscal benefits (net benefit received from government expenditure and of taxes paid). There may be, however, special purpose grants servicing central government objectives, which may also reduce horizontal imbalances at least in some functional areas. This is broadly the approach in the Un...
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