commission on fiscal imbalance 合集

The theory provides broad guidance in delineating

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Unformatted text preview: four pillars: expenditure assignment, revenue assignment, intergovernmental transfers/grants, and subnational debt/borrowing (Bird, 2000). 5.1. Expenditures Expenditure assignment is the first step in designing an intergovernmental fiscal system. Designing revenue and transfer components of a decentralized intergovernmental fiscal system in the absence of concrete expenditure responsibilities would weaken decentralization process (Martinez-Vazquez, 1998). In Latin America and Eastern Europe, many countries have focused only on the revenue side of decentralization and neglected a clear assignment of expenditure responsibilities, which led to weak decentralized systems and fiscally overburdened central governments. The lack of clarity in the definition of subnational responsibilities has a negative impact on three important respects. First, if the responsibilities are imprecise, the necessary corresponding revenues will remain poorly defined. Second, without clear responsibilities, subnational government officials might prefer to invest in populist projects which benefit them in the short run rather than in projects with long term impact on the region's economy (such as infrastructure, education, etc.). Third, there will be a confusion whether subnational expenditures represent local priorities or centrally determined programs. The “assignment problem” is the most fundamental issue in designing an intergovernmental fiscal system. The theory provides broad guidance in delineating expenditure responsibilities among various levels of governments. However, the key to the success of a decentralized system is matching expenditure responsibilities with the objectives of service assignment. A report prepared by the US Advisory Commission on Intergovernmental Relations (ACIR) on Governmental Functions and Processes (1974) lists four principles in regards to setting the right incentives for efficient and equitable delivery of public services. As presented in figure 9, these principles are economic efficiency, fiscal equity, political accountability, and administrative effectiveness. They suggest that expenditure assignments should be made to governmental units that can ...(1) supply a service at the lowest possible cost; (2) finance a function with the greatest possible fiscal equalization; (3) provide a service with adequate popular political control; and (4) administer a function in an authoritative, technically proficient, and cooperative fashion.17 The principles of expenditure assignment provide a framework to determine whether each function could be best performed by central government or any other level of governmental unit. In more specific terms they relate economic, political, and administrative considerations to the geographic and population size considerations: 18 17 ACIR (1974), p. 7. 161 Commission on Fiscal Imbalance 1. Economic Efficiency: Functions should be assigned to jurisdictions (a) that are large enough to realize economies of scale and small enough not to incur diseconomies of scale; [economies of scale] (b) that are willing to provide alternative service offerings to their citizens and specific services within a price range and level of effectiveness acceptable to local citizenry; [public sector competition] (c) that adopt pricing policies for their functions whenever possible. [public sector pricing] 2. Fiscal Equity: Appropriate functions should be assigned to jurisdictions (a) that are large enough to encom...
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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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