Abstract
Purpose: Grant allocation formulas used to allocate fiscal resources among different tiers of government have proved to be useful in many countries around the world. This article provides a unit cost approach equalization formula that was used in the Federal Democratic Republic of Ethiopia (FDRE) to transfer resources from the regions to the woredas (districts) in 2007. Study methodology: The study approach involved gathering and reviewing of pioneering literature; identifying six representative sectors; field visits to collect and collate data; and data analysis. Findings: The developed model was highly equalizing. The FDRE adopted the study recommendations and the regional governments used the formula, or a modified version thereof, to transfers resources to woredas. Research limitations: It was not easy to access the required data. Furthermore, the representative sectors may not holistically reflect the actual budgetary needs of the Local Governments (LGs) due to their heterogeneous tax bases and expenditure needs. This can be addressed with future research to further refine the model presented and granularity of data used. Practical implications: The study developed and specified a mathematical unit cost equalization model, which was applied to Tigray region in FDRE. The model’s ability to equalize was tested and evaluated econometrically. Social implications: The paper identified six representative sectors that have high synergies in terms of poverty eradication via improved social service delivery. These sectors attracted large budgetary allocations.
Highlights
This article investigates intergovernmental fiscal relations for the Federal Democratic Republic of Ethiopia (FDRE)
The article builds on earlier work commissioned by the District Level Decentralization Programme (DLDP)
The study carried out data collection, collation, and analysis to develop informed policy recommendations based on tangible figures
Summary
This article investigates intergovernmental fiscal relations for the Federal Democratic Republic of Ethiopia (FDRE). FDRE has nine regional governments and two towns.. The article builds on earlier work commissioned by the District Level Decentralization Programme (DLDP).. DLDP dichotomized the sub-national-level governments (SNLGs) into reforming and less-developed regions. The grouping was based on the level of economic advancement and the region’s ability to amass fiscal and financial data for planning and budgeting purposes. The current article focuses on the former
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