Designing Sound Fiscal Relations Across Government Levels in Decentralized Countries
IMF Working Papers, December 10, 2018
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- Designing Sound Fiscal Relations Across Government Levels in Decentralized Countries
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Bibliographic details
- Authors: Robin Boadway
- Published: December 10, 2018
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484387788.001
Analytical framework: vertical gap and vertical balance
- Introduces the concepts of “vertical gap” and “vertical balance” as an analytical framework for identifying and addressing key challenges in fiscal relations between central and subnational governments.
- Uses these concepts to analyze whether financing of subnational governments—composed of transfers received from the center, own revenues, and borrowing—is efficient and adequate given the allocation of spending responsibilities.
Financing of subnational governments
- Financing components identified: transfers from the center, own revenues, and borrowing.
- Objective: ensure financing is both efficient and adequate relative to assigned expenditure responsibilities.
- Emphasizes the role of transfer design in correcting mismatches between revenue-raising capacity and expenditure responsibilities.
Sequencing and economic principles for decentralization design
- Examines sequencing underlying revenue and expenditure assignments.
- Discusses economic principles that should guide:
- Assignment of revenue bases and expenditure responsibilities.
- The design and targeting of transfers.
- Rules and constraints on borrowing by subnational governments.
Policy perspectives and recommendations (high-level)
- Use the vertical gap/vertical balance framework to diagnose mismatches and guide policy responses.
- Align revenue assignments, transfer systems, and borrowing rules with expenditure responsibilities to improve efficiency and adequacy.
- Consider sequencing reforms to revenue administration and decentralization to ensure capacity and incentives are in place before transferring responsibilities.
Content in this bundle
- Vertical Fiscal Gap and Decentralization Mismatch