Beyond Flypaper: Unconditional Transfers and Local Revenue Generation in the Philippines, 1992–2016

Abstract

ABSTRACT This article argues that fiscal decentralization hinged on unconditional central to local transfers, as in the case of the Philippines, induces overreliance on central government support and defeats the principle of fiscal autonomy. Examining Philippine fiscal and electoral data from 1992 to 2016, two empirical observations are made. First, unconditional transfers in the form of internal revenue allotments (IRA) crowd out local revenue generation and creates fiscal dependency among local government units. Second, local government units that rely less on IRA not only tend to be more active in raising their own income sources but also tend to allocate more for public welfare. As an implication, the findings suggest that federalism as a mode of decentralization will not necessarily create a more efficient and equitable system of fiscal governance if its institution is abrupt and if it does not take into account the coordination of subsidiary units as direct stakeholders.