Intergovernmental Relations and Fiscal Discipline : Between Commons and Soft Budget Constraints

Author/Editor:

Guiseppe Pisauro

Publication Date:

May 1, 2001

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

Fiscal decentralization is likely to entail a bias in the budget process toward higher public expenses and deficits. The paper reviews lessons drawn from the theoretical literature and international experience on the design of intergovernmental relations. The institutional setup should address the dual problem of "common tax resources" and "soft" budget constraints, where policies devised to correct one problem may exacerbate the other. An approach based on full tax autonomy of lower-tier governments and reliance on market discipline, not supplemented by self-imposed constitutional limits, is not advisable. More effective seems to be a cooperative approach with some preeminence granted to the central government.

Series:

Working Paper No. 01/65

Subject:

English

Publication Date:

May 1, 2001

ISBN/ISSN:

9781451848687/1018-5941

Stock No:

WPIEA0652001

Format:

Paper

Pages:

30

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