Fiscal Federalism Research Articles

Fiscal federalism and public expenditure on education: an Indian experience post-2015

Fiscal federalism and public expenditure on education: an Indian experience post-2015

Judicial Reforms and the Imperative for True Fiscal Federalism in Nigeria

Fiscal federalism is all about adequate financial provisions and autonomy to component units of a Federal State. It is an arrangement whereby revenue sources and allocations are shared amongst the three tiers of Governments in such a way that each of the level exists independently with enough resources and allocations to function as a Government properly. By the combined readings of Sections 81(3), 84(1) (7), 121(3), 124(1), 162(9) of the Constitution of the Federal Republic of Nigeria 1999, show that finances meant for the judicature is controlled by the Federal Government which bears down negatively on the functions of the judicature. The aim of this paper is to examine the need for judicial reforms in Nigeria which will bear on the quality of justice delivery in the country. It seeks to examine the present constitutional provisions on fiscal matters and how it affect judicial reform in Nigeria. The article delved into the legal framework to bring to the fore the necessity to put in place true fiscal federalism in the judiciary in order to have effective judicial reforms. It adopted the doctrinal method of research and used primary and secondary sources such as the Constitution, relevant statutes, case law, textbooks and articles in journal. Findings from the study revealed inter-alia that the Judiciary has been starved of funds thus making it unable to make the much needed impact. The implication of these findings is that without quality fiscal federalism to the judiciary in Nigeria the much clamour for reforms will continue to be a mirage. The paper recommended inter-alia that the provisions of Executive Order No 10 2020 should be inserted in the Constitution so as to protect the finances of the Federal and State Courts.

Effectiveness of the Implementation of Fiscal Federalism at the Local Level

This study was carried out in the initial stage of the implementation of federalism which has adopted fiscal federalism. The current public finance management system adheres to intergovernmental fiscal transfer. During the study, civil servant adjustment by the federal government was ongoing. This study examines effectiveness of the implementation of fiscal federalism at the local level. It further analyses local level’s own source revenue. Following the Constitution of Nepal (2015), Local Government Operations Act (2017) defined Metropolitan, Sub-Metropolitan, Municipality, and Rural Municipality as Local Levels as well as Local Governments. The qualitative method was adopted to accomplish the study for fulfilling the effectiveness of implementation of fiscal federalism. Available literature and data were analysed and interpreted with relevant themes. Besides, some quantitative data have been presented for analysing the own source revenue of the local levels. The study found it interesting that not only the federal, and province governments transfer the budget to the local government, but the local governments also collect and share the budget for province governments. It seems top down transfer and bottom up sharing. Besides some confusion, conflict, and mismanagement, the effectiveness of implementation of the fiscal federalism seems positive because local governments are the nearest and dearest for people. Moreover, the own source revenue collection practice and tendency show that it will increase in future.

Boosting Service Delivery through Strengthened Local Government Assessments: Insights from Uganda's LGMSD Framework

In an era where efficient service delivery is paramount for the socio-economic development of regions, it is essential to explore effective mechanisms in improving local governance. This paper dissects the utilisation of the Local Government Management and Service Delivery (LGMSD) framework in Uganda as an innovative approach to enhancing service delivery at a local level. From 2014/15, the Ugandan government introduced the Intergovernmental Fiscal Transfer Reforms (IGFTR) to enhance the adequacy, equity, and efficiency of local government financing for improved service delivery. The paper investigates the application and impact of the LGMSD assessment as a critical component of the IGFTR, focusing on five primary areas: Crosscutting, Water and Environment, Education, Health, and Micro Scale Irrigation. The findings in this paper present how this assessment model has contributed to incentivising good administrative practice, resource management, accountability, and overall service delivery. The study demonstrates how the framework has been instrumental in identifying local government functional capacity gaps and needs for performance enhancement. A noteworthy highlight of the study is the exploration of the independent assessment and internal verification audit firms; role in evaluating the effectiveness of the LGMSD framework. The study concludes with an analysis of the lessons learned and proposed strategies to improve this approach, offering a comprehensive understanding of how to replicate and tailor the LGMSD model in similar contexts in Africa to enhance LG service delivery. This study contributes to the ongoing discourse on improving governance and service delivery through enhanced monitoring and evaluation systems and provides insights for policymakers, M&E professionals, academics, and practitioners in local government administration and service delivery

The macroeconomics of establishing a basic income grant in South Africa

AbstractThis paper quantifies the effect of fiscal transfers on the trade‐off between social relief and debt accumulation and discusses the economic growth and fiscal implications of different combinations of expanded social support and funding choices. Given South Africa's already high level of public debt, the opportunity to fund a basic income grant through higher debt is limited. Using a general equilibrium model, the paper shows that extending the social relief of distress grant could be fiscally feasible provided taxes rise to fund such a programme. Implementing such a policy would, however, have a contractionary impact on the economy. A larger basic income grant (even at the level of the food poverty line) would threaten fiscal sustainability as it would require large tax increases that would crowd‐out consumption and investment. The model results show that sustainably expanding social transfers requires structurally higher growth, which necessitates growth‐enhancing reforms that crowd‐in the private sector through, for example, relieving the energy constraint, increasing government infrastructure investment and expanding employment programmes.

Conceptual Approaches to the Concepts of Tax and Budget Federalism

In the work carried out, the theoretical aspects of budget and tax federalism were explored, taking into account the diversity of proposed conceptual approaches to their content and the lack of a unified approach to defining these concepts. The vagueness and diversity of interpretations of budgetary and tax federalism reduces their scientific validity and certainty, which hinders their effective implementation in the process of developing management decisions. Features of the organization of the system of state and municipal government in the Russian Federation in matters of delimitation of budgetary and tax powers between levels of government lead to the emergence of many problems, the key of which is the high level of differentiation of the subjects of the Russian Federation in terms of budgetary security. The purpose of the study was to develop a conceptual approach to understanding the concepts of “fiscal federalism” and “tax federalism” based on existing scientific definitions, as well as taking into account the peculiarities of their implementation in the Russian Federation. To carry out the work, methods of fundamental developments in the field of financial theory, scientific generalizations and comparative analysis were used. The results of the study were theoretical generalizations and analysis of the practical implementation of fiscal regulation mechanisms, as well as the author’s definition of the concept of “tax federalism”, and the key elements of its focus were highlighted. The final part of the article formulates the main conclusions based on the results of the analysis of the theory of budgetary and tax federalism, characterizes the features of their implementation in the Russian Federation, reveals the economic essence of tax federalism, its functional basis for the purpose of improving the mechanism of interbudgetary relations.

Fiscal federalism and foreign direct investment – An empirical analysis

AbstractPrevious empirical studies suggest that fiscal decentralisation, measured by the number of government layers, is associated with less foreign direct investment (FDI). With an improved dataset on the tax autonomy of sub‐federal government tiers, we present evidence that fiscal decentralisation (de facto) does not reduce FDI. If local governments can set their tax rates and bases autonomously, they attract more FDI. Analysing 128,425 corporate cross‐border acquisitions (CBA), between 194 source and 215 host jurisdictions from 1997 to 2021, we find that full taxation autonomy by subnational governments can double the number of CBAs in a given year. These results apply to high‐income hosts and do not depend on specific periods.

Changes in the Revenue Autonomy of the Local Government Subsector of the European Union Countries as a Result of the Pandemic Crisis

Theoretical background: Intergovernmental relations are a key area of research on fiscal federalism. The extent and strength of central government’s influence on local governments determines the degree of autonomy of local authorities. The prevailing view in the literature is that a higher degree of local government autonomy is a factor that stimulates economic growth, fiscal stability, and efficient delivery of public goods. At the same time, the COVID-19 pandemic period forced the need for coordination between central government and subnational authorities. Under such conditions, significant changes occurred in the size and structure of local government budgets, which were the result of greater interconnection of local government finances with transfers from central government. These changes meant pressure to reduce the revenue autonomy of local governments. In view of this, the article formulates a research hypothesis that the degree of revenue autonomy of local governments decreased during the pandemic period. Purpose of the article: The purpose of the article is to determine the direction and strength of changes in the level of local government subsector revenue autonomy in European Union countries. Research methods: The research used data for 2012–2022 from the Government Finance Statistics Database published by Eurostat. The values of three indicators for European Union countries determining the degree of revenue autonomy of local governments were compared: 1) the share of local governments’ transfer revenues in their total revenues; 2) the share of local governments’ own (non-transfer) revenues in general government sector revenues; 3) the share of local tax revenues in total taxation. In addition, the statistical significance of the differences in the studied indicators between the individual years of the study period was tested using a paired sample t-test (for the first indicator) and a non-parametric Wilcoxon signed rank test (of the other two indicators). Main findings: It was shown that the COVID-19 pandemic period was only to some extent a factor in changing the revenue structure of the local government. The biggest influence on the changes in this structure came from transfers received from the central government, the importance of which did increase in the years preceding the pandemic period, but the increase from year to year was small and statistically insignificant. Indeed, it was only the pandemic crisis that caused significant statistical changes in this regard. In the case of the ratio of the share of local own revenue in general government revenue, it turned out that only to a small extent was the pandemic crisis the source of the reduction in the role of local revenue in the general government sector. No significant changes in the role of local government taxes in the tax revenues of the sector as a whole were also seen. For this indicator, there was no evidence of statistically significant differences in the values of this indicator during the COVID-19 pandemic period relative to the pandemic period. Similarities were also found in the direction of change of the first two indicators relative to the average for European Union states.

Budgets of Russia's largest cities in the face of external constraints

Subject. This article discusses the issues of implementation of the fiscal federalism policy. Objectives. The article aims to analyze the budgets of Russia's largest cities through various parameters of income and expenditure. Methods. For the study, we used logical and comparative analyses. Results. The revenue part of the budgets of the country's largest cities is characterized by an increase in the share of gratuitous receipts. The dependence of local budgets on other levels of the country's budget system is noted, and the differentiation of the largest cities in terms of budget expenditures per capita is increasing. Conclusions. The results of the study can be used to develop a new model of the country's internal development, involving a more efficient use of financial resources and taking into account the factor of international sanctions.

Fiscal Transfers between Buenos Aires and the Viceregal Interior at the End of the Colonial Period: Fall of the Situado and the Relation with the Regional Royal Treasuries (1800–1810)

AbstractThis study reconstructs remittances from different regional haciendas to the main treasury of the Viceroyalty of the Río de la Plata, located in Buenos Aires, between 1800 and 1810. It estimates the extent and periodization of the decline of the situado of Potosí during the last colonial decade, determining whether the contributions from regional treasuries made up for it. It also estimates the impact of transfers on the regional treasuries. By drawing on the accounting books of various treasuries, the article identifies the main mechanisms that the Royal Treasury of Buenos Aires implemented to seize surplus resources of the viceroyalty’s interior haciendas at the end of the colonial period. The ability of the Royal Treasury to seize those surpluses was significant and implemented through various mechanisms of the ancien régime.

How the Pennies Drop


 The introduction of a Goods and Services Tax (GST) in India in 2017 not only impacted the economy, but also altered the contours of fiscal federalism in India. Amongst other indicators, the steady growth of GST revenue has been a robust barometer of the success of the reform. This paper delves into the trends of GST collections to evaluate the efficacy of the reform to generate revenue. Subsequently, an attempt is made to answer the questions – what drives revenue growth, and are the collections, collection efficiencies, and buoyancy of collections better under GST as compared to the pre-GST period? This is done by examining GST collections while controlling for extraneous factors, such as inflation. Further, a novel mechanism for computing the collection rate of GST, using only publicly-available data is proposed. This has potential applications in revenue modelling, in analysis of trends across time and geographies, and for policy formulation. Rationalization of tax rates, structural efficiencies, widening of the tax base, and enhanced compliance are seen to contribute to the positive outcomes observed. In order to address the paucity of disaggregated data on enforcement in the public domain, the paper uses judicial data from District Level Courts to analyse spatial dimensions of GST enforcement. Overall, it is seen that GST has delivered on multiple fronts, including revenue growth, formalization of the economy, reduced rates of taxation, and creation of a more unified market. We also observe that post-GST tax buoyancy and collection efficiencies have shown significant improvement.

Asymmetric Fiscal Federalism and Public Provision of Healthcare: New Insights from India

In this article, we show undesirable consequences of a market-based system and argue for a public provision of healthcare. We examine the healthcare provision from the fiscal federalism perspective. With the asymmetric fiscal federal structure characterised by vertical and horizontal imbalances, states are dependent on transfers from union to provide public goods. Our analysis shows a widespread disparity in the public provision of healthcare in India due to fiscal imbalances. The performance of states in the management of the COVID-19 pandemic reveals that a robust public healthcare system is a prerequisite in managing a health emergency. We identify the withdrawal of governments from healthcare provision and concentration of resources with the union government as critical impediments to achieving universal healthcare access. In light of our analysis, we emphasise the need for resource devolution and cooperative federalism to ensure public provision for a dignified life in a functioning democracy.

Equalizing federal transfers to Brazilian municipalities: old problems and new proposals based on the experiences of fiscal equalization programs in OECD countries and results-based fiscal transfers in the State of Ceará

Resumo Instituídos pelo governo militar e mantidos essencialmente intactos pelos governos civis subsequentes, os critérios de distribuição do Fundo de Participação dos Municípios são claramente anacrônicos e injustificáveis. O texto propõe novos critérios a partir da experiência dos programas de equalização fiscal em países da OCDE e da experiência do estado do Ceará com a distribuição do ICMS.

Revenue Allocation and the Challenge of Federalism in Nigeria

This paper is focused on the federal government revue allocation and the challenges of allocations The method of data analysis adopted is the qualitative descriptive method of investigation. The qualitative research method deals with variables that are not easily manipulated to empirical measurement or verification. The poor structural layout of the Nigerian federalism is rooted in our colonial history, our colonial history affects the structure of the federal system we are operating the paper made the following recommendation amongst others, the Nigeria state should be restructured to reflect fiscal federalism in its character and composition.

Some Aspects of Karnataka State Finances : A Critical Analysis

In Indian fiscal federalism states play important role by shouldering responsibility of social and economic development activities. With the progress in economic development, fiscal burden of states is increasing over the years. On the other hand, fiscal sector reforms like introduction of GST have affected the revenues of states. As a result, most of the state governments are finding it difficult to manage finances effectively. This paper tries to analyse the financial position of Karnataka state by taking into consideration revenue and expenditure aspects. It is concluded that due to proactive policies and efficient fiscal management Karnataka state was able sustain prudent fiscal management

The impact of fiscal decentralization on health outcome in Vietnam: a focus on the role of public service delivery and corruption

ABSTRACT This study examines the applicability of fiscal decentralization theory, originally developed in Western countries, to Vietnam at the provincial level. The aim is to explore the indirect impact of public service delivery on the relationship between fiscal decentralization and health outcomes, with corruption as a moderator. The study employs the conditional process analysis. The findings reveal that the multi-dimensional nature of fiscal decentralization results in different statistically significant effects on health outcomes. While fiscal autonomy does not guarantee an impact on health outcomes, revenue-fiscal decentralization positively improves health outcomes. These effects are intensified by more significant control over corruption, suggesting that limiting corruption is crucial to ensuring the benefits of fiscal decentralization. Moreover, our study shows that public service delivery does not mediate the effect of fiscal decentralization on health outcomes. Overall, our findings suggest that applying Western theories of fiscal decentralization to the context of Vietnam is challenging. The research recommends reforming the fiscal transfer mechanism and strengthening control over corruption in public services.

Government Fiscal Transfers and the Technical Efficiency of Optimising Sustainable Public Debt in Kenya

Over the past decade, as Kenya has consistently made fiscal transfer from the central government to the counties, the country’s public debt has continuously become less sustainable. This observation contrasts with the position held in devolution literature that fiscal decentralisation makes the management of public funds more efficient, manifested by improvements in public debt sustainability. This study sought to establish the relationship between fiscal transfers from the central government to the county governments and the technical efficiency of optimising sustainable public debt in Kenya. The study was anchored on the economic theory of technical efficiency. Using a co-relational quantitative research design, a time series analysis was made on secondary data collected over the period 2013 to 2021 from a census enquiry of all the 47 counties of the country. It employed the stochastic frontier analysis technique using the Evsey Domar debt sustainability assessment. Between 2013 and 2021, the technical efficiency of optimising sustainable public debt averaged 12.5% ranging between 87.5% and 0.05%. Over the period, fiscal transfers were found to improve the technical efficiency of optimising the sustainability of public debt (β = - 17.224); the relationship between the two variables was found to be statistically significant (p = 0.000 < 0.05). However over the study period, fiscal transfers had a downward trend. The study provides useful information for fiscal transfers policy and recommends that future research examine the relationship between the optimisation of sustainable public debt and the different forms of fiscal transfers.

A theory of international unions with exits

The dwindling popularity of globalization and international cooperation poses the issue of exiting an international union. An individually made exit decision is inefficient, as it neglects the losses of the other members. Fiscal transfers inside the union eliminate socially inefficient exits and restore the first-best outcome. When fiscal transfers are impossible, the union benefits from introducing exit costs during the formation process. Those costs are Pareto-optimal despite being a deadweight loss. If the union cannot fully commit to imposing exit costs ex post, it can use the anticipation of further exit decisions to increase its credibility. The paper also explores the scope for post-exit cooperation between the exiting country and the union. I show that both parties prefer a soft exit over a no-deal exit. However, the union might be reluctant to agree to a deal if it forms a precedent for the other union members. The model sheds light on Brexit and the UK-EU negotiations but also applies to other international unions.

Natural resources, carbon neutrality, and fiscal federalism: Implications for G7 countries amid rising Covid-19 concerns

Growing apprehensions regarding the environment have become a significant focus of recent literature. In this vein, revenue decentralization, expenditure decentralization, natural resource rent, and economic growth gained less prominence in explaining the consumption-based carbon dioxide emissions of the G7 countries amid rising Covid-19 concerns. Thus, the role of these factors is crucial in investigating their impact on environmental sustainability using G7 nations from 1990 to 2021. The preliminary findings assert the existence of cross-sectional dependence, slope heterogeneity, first-order stationary, and long-run equilibrium relationship between the stated variables. The results show that revenue decentralization positively impacts carbon neutrality, while expenditure decentralization, natural resource rent, and economic growth enhance environmental degradation in the region. Regarding the indirect impact, expenditure decentralization positively moderates the influence of natural resource rent; however, the magnitude is less than its direct impact. Concerning the moderating effect of revenue decentralization and natural resource rent, the outcomes revealed that revenue decentralization mitigates the destructive consequences of natural resource dependency and subsidizes the emissions mitigating effects. The study suggests a transparent fiscal decentralized setup could help to achieve environmental sustainability.

Comparative Fiscal Federalism and the Post‐Covid EU: Between Debt Rules and Borrowing Power

This thematic issue examines two main research questions: What are the features, the determinants, and the implications of fiscal integration in a system of multilevel governance like the EU? And, what can the post-pandemic EU learn from established federations when it comes to fiscal integration? We attempt to conceptualize the patterns of EU fiscal integration. In so doing, we identify eight instruments of fiscal integration in a federal or multilevel polity, equally divided between fiscal capacity and fiscal regulation, depending on the side of the budget and the mode of integration (autonomous or dependent). For instance, as part of the fiscal capacity instrument of integration, we propose to distinguish between revenue and expenditure capacity. Revenue capacity is then further divided into tax capacity, based on EU/federal taxes, and budgetary capacity, based on non-independent sources, for instance, contributions from the member states. Expenditure capacity is divided into autonomous spending capacity, meaning direct spending by the EU, and a dependent transfer capacity, where the EU merely distributes resources (both grants and loans) to the member states.