Fiscal Federalism Research Articles

Regional Budgets in Q1 2021: Own Revenues Are Recovering

In Q1 2021, the revenues of the regions’ consolidated budgets went up compared to Q1 2020. The growth was ensured by the federal budget fiscal transfers and an increase in the own tax and non-tax revenues of regional and local budgets. According to the results of H1 2021, we can expect double-digit growth rates of own tax and non-tax revenues of the consolidated budgets of the subjects of the Russian Federation, and the main trend in the structure of public debt of the regions until the end of this year will be the replacement of commercial loans with budget ones.

Where are Global Oil Prices Headed?

Almost all commodity prices recovered in the third quarter of 2020 following steep declines earlier in the year due to the COVID-19 pandemic. Crude oil prices have doubled since their April low, supported by sharp oil supply cuts by OPEC+, but prices remain one-third lower than their pre-pandemic levels. This paper uses a mix of quantitative data; scenario-based economic modeling and posits two scenarios for oil prices. Scenario 1: The first scenario – equally our base case – suggests that oil prices recover strongly as countries begin inoculating their citizens. So far, more than 1.3 billion vaccine doses have been administered worldwide, equal to 17 doses for every 100 people. Meanwhile, the impact of fiscal transfers, wage subsidies and measures to accompany an economic recovery will provide the basis for higher oil demand in 2021, leaving oil prices to oscillate in the $50 - $55/bl. Our optimism rests on the fact that the majority of fiscal and monetary responses will redress the economic shock posed by the virus, while a gradual reopening of borders will support economic activity. Meanwhile, deferred demand and record-low interest rates will support credit growth, consumption, and oil-driven economic activity such as travel and retail spending. Scenario 2: The second scenario is less benign and is a closer reflection of market trends, symptomatic of the exogenous shock posed by COVID-19 and structural shock latent in the energy transition. This scenario outlines the demand implications of current measures singed to attenuate the worst effects of the virus, whilst outlining the implications of a faster transition of renewable energy in a post-COVID scenario. There are numerous challenges associated with forecasting global commodities during such an uncertain tie, for that reason, we relied both on structural trends, such as legislation for carbon neutrality, the extent and implications of fiscal stimulus across advanced economies as well as lessons for post-WWII structural adjustment.

Australian Federalism in James Buchanan’s Early Work on Fiscal Equity

James Buchanan, one of the founders of public choice theory and constitutional economics, began his career studying fiscal federalism in the doctoral program at the University of Chicago. This paper explores Buchanan’s early interest in Australian experiences with federation and intergovernmental grants as a guide to fiscal federalism in the United States. In his dissertation, Buchanan cited Australia in his arguments against the consolidation of the American states into larger regional governments. He also drew lessons from the early years of the Commonwealth Grants Commission for the intergovernmental grants that he proposed for the United States.

Regional Disparities and Fiscal Federalism in Russia

Regional Disparities and Fiscal Federalism in Russia

Application of Electricity Federalism in Nigeria: Drawing Inspiration from America

This paper examines the theory and practice of electricity federalism in the Nigerian federation. Although Nigeria is an American-styled federal entity, its practice does not reflect the true principles of federalism as practiced in America. Nigeria's electricity sector is a reflection of its imperfect practice of federalism. The effect is felt in the poor performance of the electricity sector, especially off-grid undertakings. Thus, this study turns to the practice of electricity federalism in the United State of America as a model federalist system from which Nigeria can draw inspiration towards a better practice of electricity federalism. Evidence from America demonstrates how fiscal federalism led to a robustly developed power sector. It is argued that, although constituent states of Nigeria have the legal capacity, they lack the wherewithal to develop robust off-grid electricity undertaking under the current federalist system. Hence, political restructuring that would ensure fiscal federalism is needful in Nigeria.

English

One subject that has remained contentious since the introduction of federalism in Nigeria has been how the revenue accruing to the nation will be shared between the federating units, namely, the federal, state and local government and among the states and the local government councils. The over centralization of power and resources in the first tier of government, has weakened other levels of governments, and undermined their capacity to fulfill the raison d’etre for their establishment. The principle of independence and co-ordinate jurisdiction of different tiers of government that is a prerequisite of federalism has substantially been eroded, thus, exacerbating various forms of revolts. This paper reviews fiscal federalism, sub-national political revolt and internal colonialism in Nigeria. It utilized secondary data and content analysis as its methodology. The paper observed the structural imbalance in Nigeria’s federal system occasioned by colonial experience amongst others as the causes of sub-national revolts and recommends restructuring of the Nigeria as the panacea for the survival of federalism in the country. Key words: Corruption, federalism, fiscal federalism, sub-national, internal colonialism, Niger Delta, Revolt.

Non-tax Burden Management as a Manner of Increasing Fiscal Competitiveness – The Experience of Bosnia and Herzegovina

In this paper, we analyze the new system of improving fiscal transparency in Bosnia and Herzegovina (BiH) and its ability to contribute to increasing fiscal competitiveness. BiH has a specific system of fiscal federalism and decentralization, with four fiscal jurisdictions of disproportionate jurisdiction. By introducing the fiscal register as a public document, fiscal jurisdictions seek to increase fiscal transparency, discourage the introduction of new non-tax levies, reduce existing non-tax levies and eliminate parafiscal levies. In this paper, we investigated whether the new legislation allow for the achievement of these goals. Using the method of qualitative analysis, we concluded that rigorous conditions for entering public tax in the fiscal register and the legal provision that there is no obligation to pay any public tax if it is not entered in the fiscal register are a realistic basis for increasing fiscal transparency. A higher level of fiscal transparency should strengthen the interest of businesses and citizens in the non-tax burden and increase pressure on the government to reduce it. In order for a higher level of fiscal transparency to have an impact on increasing fiscal competitiveness, reforms of government institutions and changes in the way public money is spent are necessary.

Taxation and mobility in dualistic models– (and) Some neglected issues of fiscal federalism

Abstract. In this paper we present and confront the expected outcome of a raise in earnings taxes on the regional or sectoral allocation of labor force and employment. The basic frameworks are the benchmark dualistic scenarios. A single-input analysis of an homogeneous product economy is provided once extensions were designed to highlight the role of mobility barriers and how they interact with local wage-setting rules to determine regional allocation rather than trade issues or factor substitution. We report the main effects on equilibrium local after-tax wages, supply, employment and aggregate welfare surplus of a unilateral as well as a simultaneous unit tax increase of the (a) basic two-sector model in six different scenarios: free market; partial (one-sector) coverage with perfect intersector mobility; partial (one-sector) coverage with imperfect mobility (Harris-Todaro); multiple (two-sector) coverage with imperfect mobility (Bhagwati-Hamada); partial (one-sector) coverage with affiliation restrictions in the covered sector; partial (one-sector) coverage with limited employment generation ability in the traditional uncovered sector. Needless to say, the results would apply to any other production factor, one or other scenario being more appropriate for inference of the consequences of differential taxation systems. Keywords. Taxation and migration, Taxation and mobility, Taxation and segmented labor markets, Regional labor markets, Fiscal federalism. JEL. O15, O18, O24, R13, R23, R59, H29, H71, H73, J42, J61, J62, J68, F22, F42.

Local government competition and regional innovation efficiency: From the perspective of China-style fiscal federalism

Abstract Through data envelope analysis, this article finds that the innovation efficiency of China’s three regions is shrinking. From the perspective of Chinese fiscal federalism, we try to study the influence of two forms of local government competition (vertical competition and horizontal competition) on regional innovation efficiency. We find that both fiscal decentralization and competition among local governments effectively promote regional innovation efficiency, while there is no effective interaction mechanism between them. The attitude of local governments toward scientific and technological (S&T) activities also directly affects the efficiency of regional innovation. From the top of policy design, in order to establish a national innovation system and improve innovation efficiency, appropriate fiscal autonomy should be granted to local governments. Suggestions include that local governments should strengthen S&T activities and cooperate with each other, which is an important S&T policy guidance for central government in the future.

Vertical fiscal imbalance, transfer payments, and fiscal sustainability of local governments in China

This paper measures fiscal sustainability of local governments in China and analyzes the effects of vertical fiscal imbalance and transfer payments on fiscal sustainability under the framework of Chinese-style fiscal decentralization. We find that the current fiscal behaviors of local governments in China are unsustainable, but most local governments have sufficient space to establish a positive fiscal feedback mechanism through fiscal adjustment to achieve fiscal sustainability in spite of the existence of “fiscal fatigue”. Moreover, the effect of transfers from central government on fiscal sustainability depends on the degree of vertical fiscal imbalance. More specifically, the transfers have a negative impact when the vertical imbalance is low, and have a positive impact when it’s high. Finally, these results are robust to alternative model specifications and endogeneity issues.

Fiscal federalism and income inequality: An empirical analysis for Switzerland

Traditional theory implies that fiscal federalism hinders redistribution and increases inequality. Decentralization might however improve predistribution. To obtain more precise empirical evidence on this relationship we introduce an interaction between tax decentralization and jurisdictional fragmentation and analyze its impact on pre- vs. after-tax inequality. The empirical strategy relies on the unique institutional setting and data consistency in Switzerland which allows to exploit cantonal variance since 1945. According to our findings, tax decentralization reduces income inequality as long as jurisdictional fragmentation remains limited. Significant effects in pre-tax income suggest an impact via the predistribution instead of the redistribution channel.

Hybrid Regimes within Democracies: Fiscal Federalism and Subnational Rentier States, by Carlos Gervasoni

<i>Hybrid Regimes within Democracies: Fiscal Federalism and Subnational Rentier States</i>, by Carlos Gervasoni

Poverty Trap and the Debacle of Economic Development in Nigeria

In 1973, Gowon the then Head of State of Nigeria proclaimed that money is not the country’s problem, but how to spend it. At that time, Nigeria was awash with oil money accruing to her from the oil boom. Today, Nigeria is regarded as the poverty capital of the world making scholars of development to question what really went wrong; where did the country got it all wrong? It is thus in view of this rapid decline from abundant wealth to chronic borrowers that this study was developed. The study relied on secondary sources of data for information. Thus, the theory of fiscal federalism as developed by K.C Wheare was applied and the findings of the study revealed the political, economic and social structure of the country to be an enforcer of poverty. To this end, the study recommended that if the country is to escape the poverty trap which she finds herself, there must be a complete overhaul of the present structure to allow for more economic flexibility of the constituent unit as the present structure was noted for being too rigid for development.

Do Fiscal Transfers Foster Regional Economic Growth?

Abstract Fiscal transfer development across the world today has been in part driven by assertions of a supposed ‘economic dividend’ linked with the devolved financial spending. There is, however, little empirical evidence to validate these assertions in Kenya. It is against this background that this study was carried out to estimate the end product of fiscal transfer on regional economic growth in Kenya using a secondary panel data set. Using the ARDL estimation technique the long -run and error correction estimates of the model were generated. The findings revealed that increased fiscal transfer in recurrent budgets accelerates regional growth, hence confirming the Keynesian hypothesis. Conversely, fiscal transfer in capital expenditure was insignificant. This study recommends the need for policymakers to put in place policies and strategies that will improve budget allocation and execution in capital budgets so as to improve physical infrastructure and thus boost private productivity and consequently regional income growth.

En mémoire de Gordon Tullock, l’économiste non-conformiste

Gordon Tullock’s insights have revolutionized the analytical framework of economists and political scientists. Both independently and with coauthor James M. Buchanan and others, Tullock (1922-2014) made seminal contributions to the economic theory of majority voting, constitutions, rent seeking, fiscal federalism, bureaucracy, government action to redistribute income, demand revelation, bio-economics, monetary history, and in law and legal systems with focus on the economic analysis of pollution, crime, punishment, and litigation. Tullock applied his economic perspective of homo economicus to the common law versus the codified law and the economics of juries. His innovative use of the economic paradigm to areas considered outside standard economics, often led him to unexpected outcomes, which laid the groundwork for streams of research to be carried by others. Whether by neglect or purpose, Tullock did not explicitly articulate the connection of the various elements of his nonconventional economics into a general system. This paper explores some of Tullock’s unconventional work within the context of his contributions to the development of Public Choice and the broader Virginia school of political economy.

Wayfairin Constitutional Perspective: Who Sets the Ground Rules of US Fiscal Federalism?

The 2018 US Supreme Court decision in South Dakota v. Wayfair is arguably the court’s most consequential state tax decision in a generation, perhaps longer. The Wayfair decision overturned the Supr...

Review ofRussia’s Crony Capitalism: The Path from Market Economy to Kleptocracyby Anders Åslund

Anders Åslund provides a comprehensive description of the main political and economic events of Vladimir Putin’s 20 years at the helm of the country. In politics, Åslund shows how Putin skillfully maneuvered to destroy democracy in Russia. I argue that the “cultural backlash” by older generations played perhaps an even more important role. I also show that the young generations hold rather liberal values, thus providing hope for the future. In economics, Åslund focuses on large state corporations, assets of Putin’s cronies, and macroeconomic policies, with only general statements about the country’s institutional weakness. I complement Åslund’s analysis by a more detailed examination of the impact of institutions and briefly survey fiscal federalism and informal economic activities—issues without which the workings of the Russian economy are hard to understand. (JEL D72, H77, O52, P26, P35)

A Framework for Analysing Ecological Fiscal Transfers: Case Studies from the Brazilian Atlantic Forest

AbstractThis article proposes a framework for evaluating the development and evolution of economic instruments for environmental conservation through the examination of their design and the interactional and structural aspects of their implementation. The framework is applied to comparatively describe the historical evolution of the world's longest-running ecological fiscal transfer (EFT) scheme in two Brazilian sites. Results show that while legislative aspects of programme design, such as linkages and flexibility, are crucial for performance, interactional and structural characteristics during implementation, such as capacity, knowledge-sharing and transparency, can be determining factors in how the programme functions at the municipal level. Policy recommendations are provided for the development of this type of programme elsewhere. Results contribute towards the conceptual understanding of EFTs, an under-utilised mechanism with great potential for a role in conservation policy mixes.

Response to Elliot Posner’s Review of The Politics of Fiscal Federalism: Neoliberalism versus Social Democracy in Multilevel Governance

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The Politics of Fiscal Federalism: Neoliberalism versus Social Democracy in Multilevel Governance. By Adam Harmes. Montreal: McGill-Queen’s University Press, 2019. 312p. $103.87 cloth, $32.95 paper.

The Politics of Fiscal Federalism: Neoliberalism versus Social Democracy in Multilevel Governance. By Adam Harmes. Montreal: McGill-Queen’s University Press, 2019. 312p. 32.95 paper. - Volume 19 Issue 1