Fiscal Power Research Articles

The impact of digital inclusive financial development on local government expenditure: Evidence from China.

This paper investigates the impact of digital inclusive financial development on local government expenditure incentives at the income level. It does so by constructing a multi-level government Dynamic Stochastic General Equilibrium (DSGE) model that incorporates the financial sector. By employing empirical methods that involve uncertainty shocks and counterfactual simulations, the research yields several key findings. Firstly, the development of digital inclusive finance contributes to breaking down the urban-rural dual financial structure, thus facilitating balanced economic development within regions. Secondly, it reduces the proportion of financially excluded areas, accelerates fiscal decentralization, leading to an increase in local government fiscal revenue, and, consequently, an expansion of local fiscal expenditures. Thirdly, at a certain stage of digital inclusive finance development, it tends to crowd out residents' investment and consumption. Therefore, the decentralization of fiscal power and the expansion of local government expenditure at this stage may paradoxically inhibit regional economic growth. The study's conclusions validate the significant impact of digital inclusive finance on local government incentives at the income level.

Government Regional Expenditure: Pro-poor Expenditure Allocation of Public Expenditure in Kulon Progo Regency, D. I. Yogyakarta

This article aims to show the public expenditure of the Kulon Progo Regional Government responds to welfare issues with a pro-poor budget approach. Currently, Kulon Progo Regency is still the area with the highest poverty rate among regencies/cities in D.I.Yogyakarta. This condition becomes ironic because this area is under the Regional Government, which has the status of receiving special autonomy. This arrangement impacts the disbursement of special funds to Kulon Progo so that its fiscal capacity becomes large. This type of research uses a qualitative approach with the library research method. While the stages of this research consisted of problem identification, literature search, research aims and objectives, data collection, data analysis and interpretation, and research reporting. The study results show that Kulon Progo's public expenditure has not been able to bring this region out of the issue of inequality. The issue of poverty, the low human development index, the high open unemployment rate, and even the low allocation of public expenditure on infrastructure impacts the predicate and image of Kulon Progo, which has not been separated from this issue. In addition, in the aspect of public expenditure, especially based on budget allocations that are pro-poor, in fact, they have not fully accommodated their interests. This can be seen from the data analysis on the issue of inequality in the Kulon Progo Regency, which has not been properly resolved. This reality in the context of Kulon Progo is interesting to study because, with a large enough fiscal power capacity, it has not been reflected in public expenditure oriented towards the people’s welfare.

How fiscal decentralization and trade diversification influence sustainable development: Moderating role of resources dependency

After ratifying the Paris Climate Agreement (PCA), most advanced economies are contributing incessantly to the international climate change framework. However, their “Intended Nationally Determined Contributions (INDC) pledges are still far from achieved due to their high consumption of natural resources, which spurs economic activities and environmental impairments. Therefore, to coup this predicament, this study evaluates the influence of natural resource rent (NTR), fiscal decentralization (FSD), and trade diversification (TDF) on the sustainable development of G-7 countries from 1995 to 2020. The ecological footprint is used as the proxy to accurately represents environmental sustainability. The direction and magnitude of the asymmetric association of the nexus between FSD, NTR, TDF, and EFP have been evaluated with the quantile-based econometrics approach of “Method of the Moments Quantile Regression” (MMQR). The estimates of MMQR suggested that fiscal decentralization and trade diversification have negative and significant coefficients at all quantiles (Q0.25- Q0.90), which implies that these variables are the plausible solution to reducing ecological footprint by sharing the fiscal power with the local or subnational governments and excluding the specialized products from the trade basket. In contrast, NTR and GDP are positively and significantly associated across all quantiles (Q0.25- Q0.90), indicating the adverse impact of these variables due to the escalation of resource consumption and GHG emissions. Additionally, for the robustness of the MMQR estimates, the “Augmented Mean Group” (AMG) and “Common Correlated Effect Mean Group” (CCEMG) confirm a similar direction of association between variables. The results provide policy recommendations to enhance environmental sustainability through FSD and TDF.

Fiscal Federalism and Economic Development in Nigeria: An Econometric Analysis

This study examined the impact of fiscal federalism on economic development in Nigeria over the period 1981 to 2020 using annual time series. Both revenue and expenditure decentralization were used as measures of fiscal federalism. Analytically, the study employed the autoregressive distributed lag approach. The result reveals that in the long run, revenue and expenditure decentralization have a positive and significant impact on economic development in Nigeria, and many scholars have validated this finding. This finding shows that true fiscal federalism is better captured by both subnational revenue and expenditure decentralization. Given the finding, the study suggests that more fiscal power should be devolved to state and local governments in Nigeria through appropriate legislation.

China’s 1994 fiscal reform and local governments’ efforts on fighting industrial pollution

China’s fiscal reforms over 1980–1988 steadily increased the degree of its fiscal decentralization (FD) by allowing local governments more fiscal power to tax and spend. The country’s fiscal reform in 1994 continued the rise in FD on the expenditure side (FDE) but reversed its upward trend on the revenue side (FDR). This article aims to ascertain whether this change in the mix of FDE and FDR since 1994 had significantly reduced local governments’ efforts to combat industrial pollution in the context of China’s political and official-promotion systems. We do so by applying the sys-GMM to estimate the effects of FDE and FDR on local governments’ spending to combat industrial pollution, using data covering 29 Chinese provinces over the 1992–2015 period. Our findings strongly indicate that China’s 1994 fiscal reform has exerted a negative impact on local governments’ efforts to fight industrial pollution.

Municipal Own-Source Revenues in Times of the COVID-19 Pandemic

Own-source revenues represent one of the most important funding sources for municipalities in Poland. Such revenues cover all types of municipal receipts excluding subsidies and special purpose grants from the state budget. The purpose of the article was to assess the impact of the COVID-19 pandemic on municipal own-source revenues in the period 2020-2021. A comparative analysis method was used to assess this impact. The analyses were based on the revenue figures for 2020- -2021 (planned and received) as well as the figures for the year preceding the pandemic, i.e. 2019. The aggregate figures available on www.mf.gov.pl – reports on the implementation of local government budgets – constituted the main source of data. The conducted analysis showed that the first year of the pandemic was better than expected in terms of municipalities, as municipal revenues increased in Poland during this period. This resulted from the funding from the Central Governmental Fund for Local Investments (CGFLI) and qualifying these funds as own-source revenues. Rural municipalities benefited the most in this case. The scale of lost revenues as a result of fiscal power instruments applied by the municipalities was not significant.

지방자치의 활성화를 위한 지방분권형 헌법의 방향

Despite the process of policy efforts for revitalizing local autonomy and decentralization, the crisis of local extinction and deepening fiscal power due to population decline are still not very helpful in balanced local development and securing local competitiveness. The reality is that securing balanced regional development and local competitiveness is difficult without the presentation of innovative alternatives through legal and institutional improvement. In the meantime, discussions on the decentralization-type constitutional amendment have continued since 2000, and even with the implementation of the full revision of the Local Autonomy Act in 2022, a breakthrough point for decentralization has not been established. In order to exercise the actual authority of local governments through decentralization and balanced local development, it is necessary to prepare basis regulations such as self-governing rights, expansion of autonomous affairs, and local government participation rights in Chapter 8 in addition to the current provisions of the Constitution. Considering the reality that it is difficult to realize and guarantee local autonomy through improvement of local autonomy-related laws, local autonomy should be expanded through the establishment of a new basis for substantial guarantee of local autonomy. The decentralized constitutional amendment can lead to securing local competitiveness by substantial guarantee of local autonomy and realization of the right to self-governing. Local competitiveness will be the basis of the nation's competitiveness. This paper analyzes the contents of the Korean Constitution and local autonomy laws that act as the limitations of local autonomy and decentralization, identifies trends in overseas decentralization, and suggests alternatives to the local decentralization-type constitutional amendment for the development of local autonomy.

지방자치의 활성화를 위한 지방분권형 헌법의 방향

Despite the process of policy efforts for revitalizing local autonomy and decentralization, the crisis of local extinction and deepening fiscal power due to population decline are still not very helpful in balanced local development and securing local competitiveness. The reality is that securing balanced regional development and local competitiveness is difficult without the presentation of innovative alternatives through legal and institutional improvement. In the meantime, discussions on the decentralization-type constitutional amendment have continued since 2000, and even with the implementation of the full revision of the Local Autonomy Act in 2022, a breakthrough point for decentralization has not been established. In order to exercise the actual authority of local governments through decentralization and balanced local development, it is necessary to prepare basis regulations such as self-governing rights, expansion of autonomous affairs, and local government participation rights in Chapter 8 in addition to the current provisions of the Constitution. Considering the reality that it is difficult to realize and guarantee local autonomy through improvement of local autonomy-related laws, local autonomy should be expanded through the establishment of a new basis for substantial guarantee of local autonomy. The decentralized constitutional amendment can lead to securing local competitiveness by substantial guarantee of local autonomy and realization of the right to self-governing. Local competitiveness will be the basis of the nation's competitiveness. This paper analyzes the contents of the Korean Constitution and local autonomy laws that act as the limitations of local autonomy and decentralization, identifies trends in overseas decentralization, and suggests alternatives to the local decentralization-type constitutional amendment for the development of local autonomy.

부동산 관련 지방세제의 문제점과 개선방안

A local tax system is established as a taxation system that takes into account the price function for local government work and public services and the revitalization of the local economy. To strengthen the financial independence of local governments, there is a need to expand the fiscal decentralization and the size of local governments' own financial resources.
 The tax revenue from local government finances is composed mainly of local taxes, local nontax revenue, state subsidies, local grants, and local grant tax and other income. Much of the local tax is centered on property transaction tax, thereby being characterized by being closely related to the real estate business.
 A flow of real estate taxation imposes a heavy tax on multiple homeowners, thereby leading to pressuring selling as a measure to prevent a price from rising due to the lack of supply. This tax policy is functioning as a means of stabilizing the property prices and transactions by regulating real estate speculation, not the financing method that is the original purpose of the tax.
 Owing to a difference in economic conditions between regions, the inequality of local government's fiscal power poses another level of a problem. The problem of income disparity between regions makes it a rule to be dealt with at the level of national redistribution policy with the support from the central government. However, the income gap between regions can be resolved through the industrial policy or the balanced national development.

Does fiscal decentralization promote green utilization of land resources? Evidence from Chinese local governments

This paper demonstrates the relationship between fiscal decentralization, political incentives for local government leaders, and the green utilization of land resources in a highly centralized political system. Based on data on fiscal decentralization, land resource use, and pollutant emissions from 2011 to 2018 in China, this paper finds that fiscal decentralization is an effective way to enhance the green utilization of land resources. However, when local government leaders are under intense promotion pressure, the beneficial effect is lost because they tend to prioritize short-term economic growth over environmental protection. In terms of policy implications, this study suggests devolving fiscal power while establishing lifetime accountability among local government leaders to reduce their short-termist behaviors and promote sustainable development.

Does Fiscal Stress Improve the Environmental Efficiency? Perspective Based on the Urban Horizontal Fiscal Imbalance

The resilience of the fiscal system has a driving effect on environmental governance, and it is always a challenge to solve the problem of matching fiscal power with administrative power. Based on the panel data of 193 cities in China from 2013 to 2018, the data envelopment analysis method was used to evaluate the comprehensive indicators of urban environmental efficiency. The impact of fiscal stress on environmental efficiency is examined from the perspective of urban horizontal imbalance. We find that the smaller the fiscal stress, the higher urban environmental efficiency. The endogeneity is mitigated by using instrumental variables and the generalized method of moments, and the results are still robust after considering the interference of sample selection bias and variable estimation bias. At the same time, the impact of fiscal stress on environmental efficiency varies with spatial location, ecological strategic planning, economic development, and other factors, especially in southern cities, cities in the Yangtze River Basin, and cities in urban agglomerations, where reducing fiscal stress promotes environmental efficiency. In addition, green production and public environmental services are important channels for its role, and the rational allocation of self-raised funds can effectively moderate the improvement of environmental efficiency.

Intra‐provincial fiscal decentralization, relative wealth, and healthcare efficiency: Empirical evidence from China

AbstractDecentralizing fiscal power to locally elected governments is often regarded as beneficial for public service efficiency. However, questions remain about whether decentralizing fiscal responsibilities work well in countries lacking political decentralization. In China, fiscal decentralization has significantly strengthened the role of local governments in the provision of healthcare services, but evidence of its efficiency effects is scarce. To cast light on this issue, this study investigates the relationship between intra‐provincial fiscal decentralization and the productive efficiency of healthcare services in China. Analysis of panel data for 2006–2017 suggests that expenditure and revenue decentralization from provincial to sub‐provincial governments significantly improves healthcare efficiency. Further analysis suggests that the positive impact of healthcare expenditure decentralization on healthcare efficiency may be stronger in wealthier provinces. These findings have important theoretical and practical implications.

Local Policy Discretion in Social Welfare: Explaining Subnational Variations in China's De Facto Urban Poverty Line

AbstractHow do subnational agents exercise policy discretion in the social welfare sphere? To what extent do they do so as a result of various bureaucratic and fiscal incentives? The literature has documented several explanatory frameworks in the context of China that predominantly focus on the realm of developmental policies. Owing to the salient characteristics of the social policy arena, local adaptation of centrally designed policies may operate on distinctive logics. This study synthesizes the recent scholarship on subnational social policymaking and explains the significant interregional disparities in China's de facto urban poverty line – the eligibility standard of the urban minimum livelihood guarantee scheme, or dibao. Five research hypotheses are formulated for empirical examination: fiscal power effect, population effect, fiscal dependency effect, province effect and neighbour effect. Quantitative analysis of provincial-level panel data largely endorses the hypotheses. The remarkable subnational variations in dibao standards are explained by a salient constellation of fiscal and political factors that are embedded within the country's complex intergovernmental relations and fiscal arrangements. Both a race-to-the-top and a race-to-the-bottom may be fostered by distinctive mechanisms. The unique role of provincial governments as intermediary agents within China's political apparatus is illuminated in the social policy arena.

Thoughts on the Manifesto for Democratization of Europe in the Light of Fiscal Powers

Today we are witnessing almost the widest gap between the richest and the poorest. Besides economic aspect of inequality, democracy deficit, acceleration of global warming, urgent needs to adopt sustainable development, adaptation issues of the migrants can be considered as main problems of today’s world. Current models are being insufficient to address these problems. Basically, European Union does not have a strong mechanism to adopt tax measures. The opponents consider that because they are not directly elected, European Union institutions may lack the democratic legitimacy that would be needed to have tax-raising powers. Considering that challenge The Manifesto for the Democratization of Europe -with its concrete suggestions- constitutes an essential effort to tackle these problems. Suggestions in the Manifesto are easily filling the gaps in the existing system in Europe. The system envisaged in the Manifesto is focusing on the European Assembly especially with its tax-raising and expenditure power. The mechanism is also novel, in the sense that it leaves the traditional way of budgeting. In this article, the authors aim is to identify the suggested model of the Manifesto and the Treaty on the Democratization of Europe.

The Legal Architecture of the Economic Responses to COVID‐19: EMU beyond the Pandemic*

AbstractThis article analyses from a law and policy perspectives the measures adopted by the European Union (EU) to address the devastating economic effects of COVID‐19, assessing their implications for Europe's economic and monetary union (EMU). The article first sets the background by exploring the main features of EMU before COVID‐19. Subsequently, it examines the multiplicity of policies deployed by the EU institutions to contain the socio‐economic damages of the pandemic – including, most crucially, the EU recovery fund "Next Generation EU" – and underlines their transformative effect on the EU architecture of economic governance. As the article argues, the responses to COVID‐19 have produced a significant rebalancing of EMU, bridging the asymmetry between EU monetary and economic policy. Finally, the article considers whether the COVID‐19‐related responses are likely to be only temporary, or rather a new normal for EMU, and sheds light on further constitutional adaptations which are needed to sustain this unprecedented transfer of fiscal power to the EU level.

Notstand und Sachverstand

Abstract In the aftermath of the First World War, the Weimar Republic found itself in financial disarray. Originally put forward by the antirepublican right, the idea of a forced loan emerged. The idea triggered harsh controversies regarding the shortfalls in the new state’s sovereignty and its lack of fiscal power within the framework of an international order. The conflicting images of the Weimar state effected the decisions finally taken. This article argues that a rhetoric of emergency was combined with notions of the expert as an apolitical figure in order to legitimize compulsory lending. Yet, contrary to contemporary perceptions, the Weimar forced loan was not a result of governmental impotence or an exceptional incident within the history of public finance. As a political tool, it helped to solve conflicts on the national as well as the international level, if only for a short period of time. As an instrument of state finance, it was not an act of failure to still fiscal needs the ‚normal way‘ but a conscious claim for the autonomy of the Weimar state. But the conviction that compulsory loans might be a legitimate element of fiscal politics under the auspices of a strong and well-informed state emerged only with the Second World War – in Germany as well as on an international level.

Results of the 1:1-matching of the CTC-EFF study: A non-randomized evaluation study

Abstract Background In Germany, more and more communities are implementing the U.S. approach “Communities That Care (CTC)” to prevent youth problem behavior. To evaluate the effectiveness of CTC, we planned a prospective natural experiment. This required the development of a specific novel recruiting and matching procedure. In this talk, we examine the ability of our procedure to achieve base-line equivalence regarding the matching characteristics. Methods The matching procedure is based on community-level data from official statistics 2017 (www.inkar.de) and police crime statistics 2019. From April 2019 to January 2020, we recruited communities that are implementing CTC (intervention communities, IC). For each IC, we recruited a matched community in the same federal state not using CTC (comparison community, CC). To examine whether the ICs (n = 15) and the CCs (n = 15) are equivalent, chi-square tests were performed for categorical variables and Mann-Whitney U tests for metric variables. Results The following are preliminary results. Of the ICs/CCs 10%/7% are large cities, 25%/29% medium-sized cities, 40%/43% larger towns, 15%/14% smaller towns, and 10%/7% rural communities (p=.995). Regarding the community development of ICs/CCs 10%/21% are shrinking, 5%/14% stable, 55%/36% growing and 30%/29% strongly growing (p=.533). The mean fiscal power (€per capita and year) of the ICs/CCs is 1,150€/770€(p=.192). The mean long-term unemployment rate is 1.19% in ICs and 1.03% in CCs (p=.726). The average annual prevalence of violent crime per 100,000 inhabitants is 1.67 in ICs and 1.78 in CCs (p=.690). Prevalence of shoplifting per 100,000 inhabitants is 3.4 in ICs and 3.5 in CCs (p=.389). Conclusions The results show that ICs and CCs are equivalent with respect to matching characteristics. Key messages The developed novel recruiting and matching procedure is appropriate for enrolling communities in non-randomized trials. The CTC-EFF study evaluates the effectiveness of CTC in Germany for the first time.

Revenues from agricultural tax in the context of the principle of financial independence of municipalities

Motivation: The presented study addresses the important and current problem of agricultural tax and the resulting revenues in the context of financial independence of local government units. The scope of financial independence held by a municipality is significantly influenced by the right to exercise limited fiscal power. It means that the state provides municipalities with a number of powers to shape the local tax system, to set tax rates, to introduce individual tax exemptions, allowances and amortizations.
 Aim: The main purpose of the article is to present the importance of agricultural tax as the source of generating own revenues by municipalities in Poland, in the years 2015–2019, in the context of the principle of financial independence of municipalities. The supplementary purpose is to analyse and assess exercising the rights in terms of shaping revenues from agricultural tax in municipalities.
 Results: The analysis covers the level and share of revenues from agricultural tax in total revenues and municipal own revenues as well as the amount of revenues lost on its account. The conducted research has shown that agricultural tax plays the greatest role as the source of own revenues in managing the budgets of rural municipalities. However, it can be noticed that the fiscal function of the tax under study is increasingly smaller in each municipal category. It should be indicated that the structure of agricultural tax, which is basically unrelated to profitability and the volume of production in agriculture, in turn, translates into a low level of own revenues potential in municipalities. The system of taxing agriculture with agricultural tax, from the perspective of financial independence of municipalities, remains ineffective and the degree of independence presented by municipalities in this respect is far from a satisfactory level. The conducted analysis addressing correlations resulting from various types of reductions in agricultural tax against revenues from this tax showed that the scale of reductions, as the effect of using various tools by municipalities, was minimal and did not exceed 1% (which makes approx. 0.5%). The exception is the possibility of reducing the upper tax rates by a municipality.

IN SEARCH OF A LINK BETWEEN FISCAL DECENTRALIZATION AND FISCAL AUTONOMY IN SERVICE DELIVERY IN URBAN LOCAL GOVERNMENT AUTHORITIES IN TANZANIA

This article investigates the link between fiscal decentralization and fiscal autonomy in service delivery particularly in urban LocalGovernment Authorities in Tanzania. In the past two decades, Tanzania government adopted fiscal decentralization reforms as partof broad local government reform program. The reforms include the transfer of fiscal power to local governments to collect and spendtheir own revenues but also to enjoy discretionary intergovernmental transfers from central government. On the contrary, local government authorities particularly in urban areas have not achieved the intended goal of the reforms. Most of the LGAs lack adequate fiscal autonomy to address the growing demand of urban services and infrastructure. Although there is already substantial amount of research explaining fiscal decentralization in Tanzania, most of this literature focuses on the limited revenue base of local government and lack of effective intergovernmental transfers. Overall, there is very little which is known concerning institutional factors which play a role when it comes to decision making on the allocation of fiscal resources to local government. The objective of this paper was therefore two folds: first to identify the current state of fiscal decentralization in two LGAs selected for this research and second was to explore the institutional factors which determine the allocation of fiscal resources in the selected urban LGAs in Tanzania. In addressing this objective, the comparative case study design was adopted namely: Kinondoni Municipal Council in Dar es Salaam region and Tunduma Town Council in Songwe region in Tanzania. The sample of 60 respondents was drawn purposely from the two cases and the data from the sampled respondents were collected through the review of documents, in-depth interviews andfocus group discussion with officials in the selected urban LGAs. The collected data were finally analyzed through contents analysis for documentary review and thematic analysis for the interviews and focus group discussion. The research findings show that the degree of fiscal autonomy has substantially deteriorated in the past six years due to excessive central government guidelines and directives which regulate expenditure and revenue generation by local government. This includes the conditions on the allocation of fiscal resources such as budget or the use of intergovernmental transfers from central government.

Net-Zero Emissions With Renewable Energy Certificates: A Public Policy for a Massachusetts Municipal Light Plant

The promotion, desire and need for renewable energy generation and transmission to electric grids to provide clean, non-carbon-based power has increased in recent years with more focus on climate change mitigation in both the public and private sectors. Renewable Energy Certificates, also known as “RECs” are the established public policy mechanism for incentivizing, verifying, tracking and supporting renewable energy. REC markets are created and managed by state governments to allow selling, purchasing and trading of these “green commodities'' to substantiate environmental attribute claims. A new legislation in Massachusetts requires all stakeholders, businesses and sectors to reduce emissions, which means electric utilities, both public and private, must participate in REC markets to green their power supply portfolios that they provide to consumers. This paper explores and analyzes the role of REC markets, monetary policy, trends, stakeholders, participants, and the current public policy debates in this area. A specific public policy making case is explored for this research, the Municipal Light Plant in Shrewsbury, MA, utilizing RECs to achieve a 100% non-carbon power supply or “net-zero” emissions. A financial analysis based on REC market research and debate is conducted to inform a rules-based and judgement-based fiscal Power Supply Policy and Greenhouse Gas Emissions Standard for SELCO (Shrewsbury Electric and Cable Operations), a public electricity utility.