On National or Supranational Objectives: Improving the Effectiveness of Targeted Expenditure Programs
IMF Working Papers, December 1, 2002
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- On National or Supranational Objectives: Improving the Effectiveness of Targeted Expenditure Programs
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Bibliographic details
- Authors: Ping Zhang, Eivind Tandberg, Ehtisham Ahmad
- Published: December 1, 2002
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451874761.001
Core problem and context
- Central governments or the international community at large are concerned about subnational service delivery.
- Targeted expenditure programs are frequently used by central authorities to redistribute infrastructure and social spending or to assure minimum standards.
- These programs are typically financed by the center, often with external assistance, but are implemented at the subnational level, which may not have incentives to spend the resources as intended by the center or donors.
- The models have direct policy relevance in the Heavily Indebted Poor Countries (HIPCs), where donor-financed resources are used for poverty-reduction at the local level, or in large countries such as China, where there is an effort to redirect social and infrastructure spending to particular regions.
Analytical approach
- The paper models the interaction between different levels of government as a dynamic game.
- It examines the design of incentive structures to influence subnational behavior.
- Key modeling focus:
- Compelling local governments to truthfully reveal their ability to implement national programs in a cost-effective manner.
- Inducing local governments to exert the effort required to maximize the expected benefits of targeted programs.
Key findings and implications
- An appropriately designed incentive structure can:
- Elicit truthful revelation by local governments about implementation capacity.
- Motivate effort by subnational authorities to achieve program deliverables and expected benefits.
- Theoretical results are applicable to contexts where central or donor funds are implemented by lower levels of government, including HIPCs and large countries with regional redistribution objectives.
Policy recommendations and design principles
- Design transfer and selection schemes that align local incentives with national or supranational objectives.
- Use dynamic-game informed mechanisms to address moral hazard and selection problems in targeted expenditure programs.
- Tailor incentive schemes to ensure cost-effective implementation and to maximize expected program benefits at the local level.
Publication and metadata
- Authors: Ping Zhang, Eivind Tandberg, Ehtisham Ahmad
- Date: December 1, 2002
- Series: Working Paper No. 2002/209
- Issue: 209
- Volume: 2002
- Pages: 30
- DOI: https://doi.org/10.5089/9781451874761.001
- Stock No: WPIEA2092002
- ISBN: 9781451874761
- ISSN: 1018-5941
- Subjects: Asset and liability management; Budget planning and preparation; Competition; Debt relief; Expenditure; Financial markets; Financial sector policy and analysis; Moral hazard; Public financial management (PFM); Tax incentives
- Keywords: Budget planning and preparation; central government objective; Competition; county government; Debt relief; expenditure program; implementing government; incentive schemes; intergovernmental finance; lower bound; Moral hazard; program deliverables; provincial government; Public expenditures; scale factor; second period; selecting scheme; selection scheme; transfer scheme; WP
IMF Working Papers. On National or Supranational Objectives: Improving the Effectiveness of Targeted Expenditure Programs. Working Paper No. 2002/209.