Subnational Data Requirements For Fiscal Decentralization

This publication has been produced as part of a capacity building programme to strengthen the ability of national statistical systems to collect subnational demographic, socio economic and fiscal data. This is important in the design of public policy options, particularly as subnational governments in the transition economies of Central and Eastern Europe become responsible for the delivery of local services. This publication contains case studies from five countries in Central and Eastern Europe that are at different stages of fiscal decentralisation (covering Bulgaria, Romania, the Slovak Republic, Slovenia, and Ukraine).

This book draws on experiences in developing countries to bridge the gap between the conventional textbook treatment of fiscal decentralization and the actual practice of subnational government finance. The extensive literature about the theory and practice is surveyed and longstanding problems and new questions are addressed. It focuses on the key choices that must be made in decentralizing, on how economic and political factors shape the choices that countries make, and on how, by paying more attention to the need for a more comprehensive approach and the critical connections between different components of decentralization reform, everyone involved might get more for their money.

Abstract: April 1999 - Considering the positive impact decentralization has had on regional economic performance and expenditure structure, Russia's federal government should: Decisively protect local self-governance and budget autonomy; Make intergovernmental fiscal relations more transparent; Develop universal models of interactions between regional and municipal governments; Impose stricter limits on total debt and budget deficits of subnational governments. To shed light on decentralization in Russia, Freinkman and Yossifov examine intergovernmental fiscal relations within regions. To analyze trends, they review channels of fiscal allocation within regions-tax sharing and local transfer schemes. To evaluate the potential impact of various fiscal decentralization patterns on regional economic performance (including growth and the budget deficit), they study data on the structure of 89 Russian consolidated regional budgets for 1992-96. They find that local governments' relative share of Russia's consolidated budget, although substantive (roughly a quarter of the total budget), did not expand after 1994. The federal government's relative role in financing public goods and services declined as the relative role of local governments increased substantially. Local governments collected more revenues in 1996 (6.4 percent of GDP) and spent more than regional governments. They also substantially increased social financing (including health, education, and social protection). Russia made no progress toward a more transparent system for tax assignments. The average level of expenditure decentralization is similar for ethnically Russian regions and national republics and okrugs but revenue arrangements differ greatly. True decentralization has taken place in oblasts and krais, where local authorities are provided with a bigger share of subnational tax revenues. A redistribution model applies in republics and autonomous okrugs, where greater local outlays have been financed through larger transfers from regional governments. Regions near each other tend to have similar budget arrangements-the result of intensive interactions between neighbors and probably supported by the activities of regional associations. The size of a region's territory does not influence decentralization outcomes. Fiscal decentralization seems positively related to the share of education spending in regional budgets. And regions with more decentralized finances tend to experience less economic decline. But budget control is weaker in more decentralized regions. Instability and lack of transparency in intergovernmental fiscal relations provide subnational governments little incentive for responsible fiscal policy. Further decentralization without greater transparency could bring greater debt and deficits. This paper-a product of the Poverty Reduction and Economic Management Sector Unit, Europe and Central Asia Region - is part of a larger effort in the unit to study fiscal decentralization in transition economies. Lev Freinkman may be contacted at [email protected].

Fiscal Federalism 2022 surveys recent trends and policies in intergovernmental fiscal relations and subnational government. Accessible and easy-to-read chapters provide insight into: good practices in fiscal federalism; the design of fiscal equalisation systems; measuring subnational tax and spending autonomy; promoting public sector performance across levels of government; digitalisation challenges and opportunities; the role of subnational accounting and insolvency frameworks; funding and financing of local government public investment; and early lessons from the COVID-19 crisis for intergovernmental fiscal relations.

The majority of the world’s children live in countries where local governments are responsible for the provision of basic education services. Although subnational governments manage their own education systems, they often rely on transfers from the central government for funding. The main purpose of this study is to assess how these fiscal transfers affect public funding for education and how they ultimately affect student schooling and learning outcomes. Through a careful analysis of how fiscal transfers have affected education systems in different contexts, the investigation develops a set of principles to support improvements in the design and implementation of transfer systems with a specific focus on the provision of education services. The study is centered on seven country case studies that aim to answer a set of common research questions using a similar approach. Country case studies were conducted in Brazil, Bulgaria, China, Colombia, Indonesia, Sudan, and Uganda. The analysis shows that fiscal transfer mechanisms can improve the adequacy of public education spending, reduce spending inequalities between regions, and improve spending efficiency. Moreover, the study highlights that carefully designed and implemented transfer systems can help raise overall education outcomes and reduce education inequality. This publication was funded by a grant from the Results in Education for All Children (REACH) trust fund at the World Bank. REACH is supported by the government of Germany through theFederal Ministry for Economic Cooperation and Development, the government of Norway through NORAD, and the government of the United States of America through the U.S. Agency for International Development.

This book deals with two issues. The first concerns the various measurement of fiscal decentralization in general and their usefulness for policy analysis. The second and more specific issue concerns the taxonomy of intergovernmental grants and the limits of the current classifications.

This paper explores the impact of fiscal decentralization on the efficiency of public service delivery. It uses a stochastic frontier method to estimate time-varying efficiency coefficients and analyzes the impact of fiscal decentralization on those efficiency coefficients. The findings indicate that fiscal decentralization can improve the efficiency of public service delivery but only under specific conditions. First, the decentralization process requires adequate political and institutional environments. Second, a sufficient degree of expenditure decentralization seems necessary to obtain favorable outcomes. Third, decentralization of expenditure needs to be accompanied by sufficient decentralization of revenue. Absent those conditions, fiscal decentralization can worsen the efficiency of public service delivery.