commission on fiscal imbalance 合集

This section discusses the impact of fiscal

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Unformatted text preview: an important tool for manipulation of short-run demand, which affects prices and employment levels. Spahn (1998) argues that Keynesian demand management argument has overemphasized the need for centralized macroeconomic policies. According to him, any national fiscal stimulus would be offset by an exchange-rate change in an open economy. With regard to economic shocks, Gramlich (1977) has argued that may shocks are asymmetric and central policy instruments cannot be customized to address localized effects of economic shocks. To the extent that local debt has national repercussions suggests time-inconsistency problem. In most countries, due to political concerns central governments cannot credibly commit to enforcing hard-budget constraint. Subnational governments may then overspend, expecting to get more resources from the common pool of national resources, either through additional discretionary transfers or bailouts. These can manifest themselves in the form of higher inflation if bailouts are financed through central bank borrowing. 7 8 9 10 11 12 13 152 Rao, 1999. Rood, 2000. Bird and Fiszbein, 1999. Dillinger and Webb, 1999. According to Prud'homme (1995), "Argentina provides a good illustration of the 'fiscal perversity' of subnational governments" and constitutional reform of 1988 in Brazil "significantly reduced the central government's ability to conduct macroeconomic policies." Fiscal decentralization has an impact on different macro indicators, such stability, public sector size, and economic growth. This section discusses the impact of fiscal decentralization on macroeconomic stability, for discussions on public sector size and economic growth see Box 1 & 2. Huther and Shah (1998) examine statutory aspects of central bank operations, such as the terms of office for chief executive officer, the formal policymaking power, limitations on lending to the government and other 13 criteria and show that there is a positive correlation between central bank independence and decentralization. Commission on Fiscal Imbalance Countries like Argentina and Brazil have had macroeconomic problems due to subnational debt reflects the fact that the old institutional arrangements no longer function under the decentralized regime (Spahn, 1998). In countries without institutional structures that support mature and stable decentralized system, subnational governments may use their fiscal power irresponsibly causing macroeconomic problems. Therefore, in countries undergoing decentralization process, institutional reform is required for an effective mechanism of intergovernmental cooperation. Institutional reforms that minimize adverse incentives and promote transparency, accountability, and predictability should be executed to have an effective fiscal decentralization (Wildasin, 1997; Bird, 2000). In the absence of these characteristics governments would settle their intergovernmental fiscal transactions on ad hoc basis, responding to the fiscal distress of lower-level units with a variety of special loans, grants, negotiated tax-sharing agreements, directedcredit programs, and other emergency bailouts, rather than establishing firm transparent rules which would govern the 14 form and extent o...
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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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