Fiscal transfers and revenue-expenditure efforts of urban local governments in Bangladesh

Abstract

Intergovernmental financial transfers (grants-in-aid) can influence the fiscal affairs and allocation and distribution of resources at the local government (LG) level. This paper uses pooled crosssection-time-series econometric technique to examine the revenue-expenditure efforts of the urban LGs in Bangladesh in response to transfers received from the central government. Two important goals of the Bangladesh central government concerning the local public sector are increased resource mobilization and fiscal decentralization. It is held that intergovernmental transfers are the key to these goals. However, this paper concludes that the urban transfer program in its current form cannot help achieve these goals. The empirical results indicate that the central grants stimulated the overall expenditures of the recipient jurisdictions but reduced their own expenditures. This means that part of the grant money was substituted for local fiscal effort of these LG units. This paper suggests that to promote local revenue generation capacity and fiscal decentralization, the transfer system should be restructured to provide proper incentives in this regard for the LGs.