Fiscal Decentralization Indicators Research Articles

How fiscally autonomous are local governments? An empirical test

How freely can local jurisdictions change their taxes and spending? I propose an empirical test of the effective degree of municipal fiscal autonomy by studying fiscal adjustments to a permanent exogenous revenue shift. Based on a tax competition model where jurisdictions are partially expenditure constrained, I derive a testable prediction: tax cuts from a small positive revenue shock will be larger (smaller) with higher perceived tax base mobility, if the local policymaker is strongly (weakly) fiscally constrained. I apply this test using a revenue shock generated by a reform in an inter-municipal transfer system within a Swiss canton. tax base mobility is proxied by the availability of zoned land reserves. I find that higher residential land availability is associated with stronger tax rate responses, but I find no statistically significant results for industrial land reserves. In light of the theory, this suggests that the effective degree of fiscal autonomy of local jurisdictions is low. Usual indicators of fiscal decentralization based on public accounts might overestimate the actual autonomy of local governments.

The Effect of Enlargement on the Indicators of Fiscal Decentralization of RA Communities

Fiscal decentralization at the local level is aimed at ensuring financial autonomy to strengthen the role of local self-government bodies. In fiscal decentralization, it is also important to clarify what powers are given to local governments so that they can determine their spending priorities and have some capacity to expand local revenue sources. The administrative-territorial reforms of RA, in particular, the enlargement of communities, is a new challenge from the point of view of the development and independence of the local self-government system of RA, but to have a well-established local self-government system, it is very important to increase both the absolute and relative indicators of the communities' incomes. The results of the analysis carried out in the communities of Armenia for 10 years show that the communities have a trend of steady growth of their incomes, which, however, is not always accompanied by an increase in the share of their incomes in the total incomes. The latter is because, despite the RA administrative-territorial reforms, the communities continue to be significantly dependent on the state budget. With the emphasis on the importance of assessing the impact of enlargement in communities after the RA administrative-territorial reforms, there is a need to introduce a methodology for calculating several indicators of fiscal decentralization in communities, which will take into account not only indicators at the local level but also other macroeconomic indicators characterizing the country's economic situation, such as GDP.

IMPLEMENTASI DESENTRALISASI FISKAL DALAM UPAYA MENGENTASAN KEMISKINAN DI KABUPATEN DAN KOTA PROVINSI JAWA BARAT

The implementation of fiscal decentralization is driven by the belief that the regional government is the vehicle that best understands the needs of regional communities rather than the central government. This delegation of authority is then followed by budget allocation and provision of public goods to the regional government. This then opens up a new assessment that simply fiscal decentralization has an impact on poverty alleviation. However, the report on the implementation of fiscal decentralization over two decades in Indonesia shows that the rapidly increasing allocation of transfer funds has not been accompanied by a rapid reduction in poverty rates. Therefore, this research aims to determine the effect of fiscal decentralization indicators on the percentage of poverty, namely local government revenue, fiscal balance transfers and local government spending. By using Panel Least Square (PLS) regression estimates, we used specific samples based on districts and cities in West Java from 2014 to 2019. The regression results show that regional income can significantly reduce poverty, while the allocation of fiscal balance transfers makes poverty increase. Apart from that, local government spending was found to have no significant influence on the percentage of poverty. This paper is expected to help the government in carrying out financial management that is right on target. The ineffective allocation of balanced transfers in West Java needs to be responded by the regional government according to the priority scale in each disctrict or city.

The Effect of Fiscal Decentralization on Economic Convergence amongst Regions in Java Island (Spatial Econometric Approach)

Convergence mechanism is needed in order to reduce regional inequality. This study aimed to examine the existence of economic convergence and analyze the effect of fiscal decentralization on economic convergence with spatial econometric approach. Local own-source revenue, balance funds, personnel expenditure and capital expenditure as proxies for fiscal decentralization indicator. Using dynamic convergence analysis, the existence of beta absolute and conditional convergence are confirmed in this study. From the estimation result, local own-source revenue, balance funds, personnel expenditure have significant role on per capita income growth, while capital expenditure has not been effective in supporting growth. If fiscal decentralization indicators are added and spatial aspects are considered in the model, it will cause an increase in the convergence rate. Improving the quality of spending is the main key to accelerating convergence.

Impact of Fiscal Decentralization on Fiscal Stance in EU: Real Deal or Econometric Illusion?

This paper aims to examine how cyclically-adjusted primary balance (CAPB) in EU countries responded to the expenditure and tax decentralization. We contribute to the literature by three important conclusions. First, estimation results indicate that CAPB positively responded to expenditure decentralization, and negatively responded to tax decentralization. Second, fiscal decentralization seems to be driven by the determinants exogenous to primary balance. Third, variables deemed as the “good” instruments in the existing literature fail to explain within variations of the fiscal decentralization indicators. We hypothesized that negative impact of tax decentralization on the primary balance is transmitted through the government revenues, but further research is needed to resolve this puzzle.

The effect of fiscal decentralization on economic growth in sub-national governments of Ethiopia: A two-step system general methods of moments (GMM) approach

The study examines the impact of fiscal decentralization on Ethiopia’s Subnational (Regional) economic growth. The study followed a quantitative research procedure employing data from 2008 to 2021. The units of analysis in the study are Ethiopia’s sub-national governments (SNGs). The study used the two-step System General Method of Moments (GMM) of dynamic panel estimation because it resolves concerns such as endogeneity and heteroscedasticity. The study’s findings revealed that expenditure, revenue, and composite decentralization have a statistically significant negative effect on regional economic growth. Moreover, among the control variables, inflation and government size have a statistically significant detrimental effect on regional economic growth. However, human capital has no significant effect. Ethiopia’s fiscal decentralization contradicts the goals and theoretical underpinnings of fiscal federalism. This may be because fiscal decentralization and economic activities function within an ethnically based federalism framework. The primary implication is that the federal government needs to reevaluate the transfer of fiscal authority to SNGs. Transforming tax policy into a robust institutional mechanism for economic growth is vital. The revenue and spending sides of intergovernmental relations also need to be closely related. As opposed to prior studies, which utilized one or two fiscal decentralization indicators, this study used multiple indicators, making the study more thorough and closing the knowledge gap.

The impact of fiscal decentralization on economic growth of regions of the Russian Federation

One of the priority goals for the state policy is ensuring sustainable economic growth. The theory of fiscal federalism argues that fiscal decentralization fosters both regional and national economic development by providing the opportunity to coordinate regional needs and national policy goals. The purpose of the study is to assess the impact of fiscal decentralization on the economic development of Russian regions. The analysis was conducted with panel data for 83 regions for the period 1996–2019. The simultaneous quantile regression approach with bootstrapping standard error was used for econometric modelling. The results of the study show that fiscal decentralization does not contribute to the economic development of more prosperous regions of the Russian Federation, whereas in less developed regions, fiscal decentralization indicators have a significant negative effect on the gross regional product per capita. Based on the results obtained, proposals aimed at improving state policies were made.

Drivers of Fiscal Resources at the Local Level in Russia: Role of Institutions Reflected in Regional Debt

The paper seeks to clarify the consequences of fiscal institutions and centralization of intergovernmental relations in Russia related to regional debt sustainability and intraregional fiscal decentralization. The consolidated regional debt is considered to be the indicator that incorporates various features of institutional framework of the Russian budgetary system, while local fiscal decentralization reflects the number of fiscal resources at the local level. The relationship between governmental debt sustainability and fiscal decentralization is known to be a complex phenomenon. Yet under the analytical framework of this research, I show that the decrease of intraregional fiscal decentralization in Russia is attributable to the growing regional debt. Essentially, I conclude that centralization of intergovernmental relations in Russia leaves little room for maneuver for regional authorities and lead both to growing risk of debt sustainability and shrinking number of fiscal resources at the local level.
 It is found that more prosperous Russian regions exhibit higher fiscal decentralization. This finding reinforces the established theory. However, in the rich northern regions of Russia dependent on oil, gas and other commodities the decentralization is relatively high, so some theoretical predictions seem to be misleading. Those unobserved factors remain to be investigated.
 Further research agenda consists of conducting calculations based not just on pooled but panel data. It will help considering characteristics of each region. Furthermore, the results need to be reassessed for different indicators of fiscal decentralization.

Fiscal Decentralization and Per Capita Income Convergence between Regencies/Municipalities in Java Island

This study aims to analyze the existence of beta absolute convergence and beta conditional convergence, the impact of fiscal decentralization in terms of income and expenditure side on per capita income and the process of accelerating the per capita income convergence using 2015-2019 panel data of 113 regencies/municipalities obtained from Central Bureau of Statistics and the Directorate General for Fiscal Balance. Using fixed effect regression models, this study confirms that there are beta absolute convergence and beta conditional convergence in Java Island during 2015-2019. Other findings are Local Own Source Revenue and Fiscal Balance Fund have a significant positive effect on per capita income growth, while Personnel Expenditure and Capital Expenditure have a significant negative effect on per capita income growth. The results also show that all indicators of fiscal decentralization play significant role in accelerating the convergence of per capita income. Based on the results of estimates, Local Government Own Source Revenue should be optimized and quality of government spending have to be improved to foster income per capita convergence between regions in Java Island. Keywords: income per capita convergence, fiscal decentralization regional inequality, absolute beta convergence, conditional beta convergence

Fiscal decentralization and income convergence: evidence from Vietnam

The question of regional per-capita income convergence has been widely investigated theoretically and empirically. This study reviews the relevant literature and considers the possible significance of fiscal decentralisation in the convergence process. Alternative indicators of fiscal decentralization are examined within a SDM model which also takes into account possible spatial interdependencies between neighbouring regions. The modelling suggests that fiscal decentralization does appear to play a significant role in the convergence process in Vietnam. Income inequality remains a challenging issue for policymakers to resolve, and if regional disparities can be reduced in part through fiscal decentralization, this is a significant finding for policy formulation.

Impact of China’s environmental decentralization on carbon emissions from energy consumption: an empirical study based on the dynamic spatial econometric model

Facing the growing problem of carbon emission pollution, the scientific and reasonable division of environmental management power between governments is the premise and institutional foundation for realizing China’s carbon emission reduction target in 2030. In this article, we directly assess the degree of environmental decentralization according to the allocation of environmental managers among different levels of government. By incorporating fiscal decentralization indicators, the provincial panel data and dynamic spatial econometric model are used to empirically test the impact of environmental decentralization on carbon emissions from a spatial perspective. The results show that (1) China’s provincial carbon emissions have significant inertia dependence and spatial path dependence. The increase (decrease) of provincial carbon emissions will lead to the increase (decrease) of carbon emissions in neighboring regions. (2) At the national level, environmental decentralization, environmental administrative decentralization, and environmental monitoring decentralization significantly reduce China’s carbon emissions, while environmental supervision decentralization and fiscal decentralization significantly increase carbon emissions. Similarly, the interaction of environmental decentralization and its decomposition indicators and fiscal decentralization also significantly promotes carbon emissions, and the impact is related to the types of environmental management decentralization. (3) The carbon emission effects of environmental decentralization in different regions are heterogeneous. The inhibition effect of environmental decentralization, environmental administrative decentralization, and environmental monitoring decentralization on carbon emissions in the western region is significantly greater than that in the eastern and central regions, but the inhibitory effect of the interaction of environmental decentralization and its decomposition index and fiscal decentralization on carbon emissions in the eastern region was significantly stronger than that in the central and western regions. The above results provide theoretical support for China to construct a differentiated carbon emission environmental management system from two aspects of regional differences and environmental management power categories.

Financial Innovation Management: Impact of Fiscal Decentralization on Economic Growth of the Baltic Countries

The management process of fiscal policy incorporates a wide analysis of various factors. The dynamic financial approach should be applied in deciding the level of centralization. The article offers the usage of the multicriteria method in selecting fiscal variables as a new instrument for financial evolution. In this article, the hypothesis of decentralization's impact on economic growth is tested to show the growth opportunities. The implications of the fiscal decentralization index on economic growth across the Baltic States for 2005-2017 were examined using a panel data approach with dynamic effects. The Baltic countries (Estonia, Latvia, and Lithuania) are often considered as a single region with similar economic profiles and common political and social values. They are closely related geographically and historically, particularly during the Soviet era. Although their post-Soviet development has been similar, there are significant differences in local administrative systems and government finances. After restoring independence, the three Baltic countries have been reorganizing their public institutions according to western standards. Each country has some differences in organizing the management of local governments. The study's novelty is emphasized by supplementing the analysis with a fiscal decentralization index, including 24 fiscal decentralization indicators. The fiscal decentralization index ranges from 0.29 to 0.51. Lithuania (0,29) has the lowest fiscal decentralization index, the highest – Latvia (0.52) in the Baltic countries. The investigated model has revealed that the facts considered produce a statistically significant effect. Results showed a negative relationship between fiscal decentralization and economic growth in the Baltic States from 2005 to 2017. It should not be forgotten that, in some cases, regions are not capable of implementing green and inclusive growth without the influence of the central government.

Impact assessment of fiscal decentralisation on macroeconomic stability factors (the Armenian case)

The paper aims at revealing the existing connection between fiscal decentralization and macroeconomic stability indicators. Within the framework of the research, we evaluated the impact of the fiscal decentralization indicators of the Republic of Armenia on the indicators characterizing macroeconomic stability. The analysis was performed by econometric modeling, linear regression models were compiled using the statistical software "EViews". The indicators characterizing macroeconomic stability were considered as dependent variables, and the indicators characterizing fiscal decentralization as independent variables. As a result, it became clear that most of the indicators characterizing fiscal decentralization have a significant impact on some macroeconomic indicators. This indicates the need for further deepening of decentralization processes for balanced regional development.

Fiscal decentralization and efficiency of public services delivery by local governments in Ghana

AbstractIn this paper, we estimate the efficiency of Metropolitan, Municipal and District Assemblies (MMDAs) in Ghana, and investigate the impact of fiscal decentralization on the efficiency of local public goods and services delivery by MMDAs. Using data from composite budgets of all 216 MMDAs, we employ both non‐parametric and parametric frontier methods to carry out the study. The results with regard to our two indicators of fiscal decentralization indicate that fiscal autonomy proxied by MMDAs’ internally generated funds as a share of their total revenue has a positive influence on the efficiency of MMDAs whilst vertical imbalance—a high share of central government grants in MMDAs’ total expenditure—does not improve the delivery of local goods and services by MMDAs in Ghana. The findings indicate a clear signal to policy managers to prioritize support to MMDAs in the mobilization of internally generated revenue.

Fiscal decentralization analysis that affect economic performance using geographically weighted regression (GWR)

Abstract Economic performance is one of the important things that have to be evaluated by the government. There are many factors that affect economic performance. This paper aims to evaluate the effect of fiscal decentralization indicators on regional economic performance in Sumatra Island, Indonesia. Based on the results of spatial dependency testing, can be concluded that there are spatial dependencies on economic performance and spatial heterogeneity between locations in Sumatra Island. Therefore, Geographically Weighted Regression (GWR) which is a spatial modelling can be used in this case. There are six independent variables that be used in this research, there are original local revenue, general allocation fund, special allocation fund, and profit share fund, poverty rate and human development index. The result showed that Geographically Weighted Regression model performed better than multiple linear regression of Ordinary Least Square (OLS) model, providing different effect information at each location. Based on model evaluation using RMSE, MAPE and AIC showed that GWR model is better than OLS model.

Fiscal decentralization and convergence in government spending in Malaysia

ABSTRACTIn this study, we highlight the influence of the federal system on the development expenditure of the states, which is crucial for socio‐economic development. First, we examine whether there is a convergence in development expenditure across Malaysian states. Second, we investigate the importance of decentralization in affecting the pattern of development expenditure in the short‐term and in the long‐term. The convergence analysis utilizes annual growth data from 2000 through 2015 for the short‐term and the averages of 3‐ and 5‐year growth for the long‐term. In this study, we employ the panel data approaches of pooled OLS, fixed effects and random effects estimation procedures. The findings provide empirical evidence of the convergence of development expenditure across the states in Malaysia in both the short‐term and the long‐term. Generally, all fiscal decentralization indicators (state per capita revenue, state own‐source per capita revenue, state own‐source revenue as a share of total revenue and inter‐state fiscal capacity) are imperative in influencing the fiscal behaviour of state governments in Malaysia. These indicators, as well as assistance from the federal government in the form of transfer payment, are very much needed to strengthen the expenditure capacity of the Malaysian states.

DOES FISCAL DECENTRALIZATION AFFECT ON THE CONVERGENCE OF PER CAPITA INCOME IN INDONESIA?

Nearly two decades since 2001 Indonesia has implemented a decentralized system. The basis of decentralization implemented in Indonesia is at the regency/municipality level while fiscal decentralization is carried out fully in the area of expenditure. It is important to know whether the implementation of fiscal decentralization has an effect on national development. One indicator to determine the impact of fiscal decentralization on development is whether there is economic convergence between regions during the period of regional autonomy. Using panel data of 411 regencies and 94 municipalities in Indonesia during the implementation period of decentralization from 2001-2017, this study aims to examine indications of economic convergence between regions in Indonesia. This study uses indicators of fiscal decentralization in terms of expenditure assignment, namely regional spending on education, health, and infrastructure. Based on the test results of both static convergence and dynamic convergence testing, it was found that there was a convergence of per capita income between regency/municipality in Indonesia.

PRIORITIES FOR THE DISTRIBUTION OF INTERBUDGETARY TRANSFERS UNDER THE CONDITIONS OF FISCAL DECENTRALIZATION IN UKRAINE

The article is devoted to the problem of the distribution of intergovernmental transfers in Ukraine, taking into account fiscal decentralization trends. To perform the delegated functions, local governments need to have sufficient funding. However, the revenues of local budgets are insufficient to cover all necessary expenses. Therefore, inter-budget transfers, which in Ukraine are the main instrument of financial equalization, play an important role in ensuring the implementation of delegated powers by local governments. The aim of the article is determination of the priorities for the distribution of intergovernmental transfers in Ukraine in the context of fiscal decentralization. The research methodology combines quantitative and qualitative methods. Using quantitative methods, the principles of fiscal decentralization in Ukraine are observed through the mechanism of distribution of intergovernmental transfers. Using high-quality methods and based on the analysis, the priorities of the distribution of inter-budget transfers in the context of fiscal decentralization are formulated. An analysis of foreign publications on fiscal decentralization has shown that the uncertainty of priorities in this area reduces the effectiveness of fiscal decentralization and inhibits the economic development of regions. Prioritization of the distribution of intergovernmental transfers is preceded by the definition of principles for the distribution of intergovernmental transfers. Based on the results of a quantitative analysis, namely, the identified dynamics of fiscal decentralization indicators and the impact of the distribution of intergovernmental transfers on economic development, the following priorities for the distribution of intergovernmental transfers in fiscal decentralization are identified: supporting the prevalence of targeted transfers over non-targeted transfers, increasing the share of capital transfers, increasing the accountability of local authorities self-government regarding the use of funds received in the form of intergovernmental budget transfers.

Spatial Analysis over the Impact of Fiscal Decentralization on the Mortality Rate in Iranian Provinces

Background: Many previous empirical studies indicated appropriate implementation of the fiscal decentralization and transfer of resources and expenses from the central government to local governments was an important factor to improve health outcomes in developing countries. Accordingly, the major purpose of this study was to evaluate the impact of fiscal decentralization indicators on the mortality rate (as an indicators of health measurement) in Iranian provinces. Methods: This study uses the statistical data of variables affecting the mortality rate in provinces of Iran to study the spatial effects of fiscal decentralization indicators on the mortality rate during 2006-2015. To this end, the spatial econometric approach was used. Furthermore, the statistical analyses were performed using the Matlab software. Results: Findings of the model's estimation indicate that indicators of the fiscal decentralization and mortality rate had a negative and significant relationship. In this regard, 1 % increase in fiscal decentralization indicators of income and expenditure decreased the mortality rate by 0.19 % and 0.10 % in provinces of Iran, respectively. Other results showed that the spatial proximity effect between provinces of Iran had a positive and significant effect on the mortality rate. Conclusion: By providing the necessary conditions for expansion of fiscal decentralization, the health level can be promoted in provinces of Iran.

Fiscal Decentralization and Local Public Health Expenditure: Empirical Analysis Based on Different Caliber Indicators and Provincial Panel Data

Based on the construction of different caliber fiscal decentralization and local public health expenditure index, this paper makes an empirical analysis of the influencing factors of local public health expenditure in China by using the methods of FGLS and dynamic panel GMM. It is found that different fiscal decentralization indicators have different effects on public health expenditure, and local governments have a large right of financial autonomy to effectively increase public health expenditure, and the central government's transfer payment to local governments also has a significant positive effect on local public health expenditure. In addition, the difference in the level of local economic development will result in uneven local public health expenditure, manifested in the double imbalance between the expenditure structure and the provision of public health services. Therefore, China should continue to increase the central transfer payment, reasonably divide the central and local financial authority, establish a hard restraint mechanism of local public health expenditure, clarify the expenditure responsibility boundary between the central and local governments, and implement the measures of combining central supervision and control with local financial autonomy, in order to solve the problem of the double imbalance between regional and regional expenditure of local public health expenditure and ensure the effective supply of local public health products.