Intergovernmental Transfers Research Articles

Intergovernmental Transfer and Local Own-Source Revenue on Capital Expenditure

During the reform era, regional autonomy has been implemented to develop each regency/city effectively and effi-ciently. The central government has delegated authority and given intergovernmental transfers to local governments to regulate and determine the priorities of their regional development. Unfortunately, the effectiveness of the trans-fer by increasing capital expenditure allocation often becomes controversial. In the recent 5 years, the percentage of capital expenditure realization is lower than that of the capital expenditure. In 2018, the average percentage of regional personnel expenditure in Indonesia was around 35.6%, while the capital expenditure was only 19.4% (DJPK, 2018). In 2022, the situation was getting worse because the personnel expenditure was allocated 62.5%, while the capital expenditure was only 15.8% (DJPK, 2022). Although the Minister of Home Affairs Regulation Number 27 of 2013 has stated that each region should allocate its capital expenditure at least 30% from the APBD, but in reality there are still many regions that haven’t complied with this rule. In Riau, until 2021 there have been no regencies/cities that can fulfill the regulation. The purpose of this paper is to analyze the impact of General Alloca-tion Fund (DAU), Special Allocation Fund (DAK), Revenue Sharing Fund (DBH) and Local Own-Source Revenue (PAD) on capital expenditure in regencies/cities of Riau in the period of 2018-2021. The analytical method applys multiple regression analysis based on Pooled Least Square model. The result reveals that capital expenditure is sig-nificantly and positively affected by DAK and PAD. Meanwhile, DBH and DAU have insignificant effect on capital expenditure of Riau in 2018-2021

Intersectional equity in Brazil's remote rural municipalities: the road to efficiency and effectiveness in local health systems.

The Brazilian remote rurality has been classified more reliably only recently, according to demographic density, proportion of urban population, and accessibility to urban centers. It comprises 5.8% of the municipalities, in nearly half of the states, with a population of 3,524,597 (1.85%). Remote rural localities (RRL) have reduced political/economic power, facing greater distances and barriers. Most health strategies are developed with the urban space in mind. We aim to understand how RRL are positioned concerning efficiency/effectiveness in health, compared to other urban-rural typologies of Brazilian localities, focusing on Primary Health Care (PHC), and its organizational models. We evaluated the efficiency and effectiveness of the organizational models using the health production model, from 2010-2019, gradually deepening the immersion into the RRL reality. We analyzed the human and financial resources dimensions, emphasizing teams, the results of PHC actions, and health levels. We used the fixed effects model and data envelopment analysis, cross-sectioned by intersectional inequities. We compared the Brazilian states with and without RRL, Brazilian municipalities according to rural-urban typologies, and RRL clusters. Brazilian RRL states show superior resource/health efficiency through services utilization according to health needs. The remote rural typology demonstrated greater efficiency and effectiveness in health than the other typologies in the RRL states. The organizational models with the Family Health Strategy (FHS) teams and the Community Health Worker (CHW) visits played a key role, together with local per capita health expenditures and intergovernmental transfers. Thus, financial resources and health professionals are essential to achieve efficient/effective results in health services. Among the RRL, the Amazon region clusters stand out, denoting the importance of riverine and fluvial health teams, the proportion of diagnostic/treatment units in addition to the proportion of illiteracy and adolescent mothers along with the inequity of reaching high levels of schooling between gender/ethnicity. Hopefully, these elements might contribute to gains in efficiency and effectiveness, prioritizing the allocation of financial/human resources, mobile FHS teams, availability of local diagnosis/treatment, and basic sanitation. Finally, one should aim for equity of gender/ethnicity in income and education and, above all, of place, perceived in its entirety.

Balancing Fund and Inclusive Economic Growth: East Java Provincial Study

One of the policies adopted by the government in development, especially in developing countries, is inclusive economic growth. This study examines how the effect of equalization funds as the main variables, as well as GDP per capita and open unemployment as control variables, on the Inclusive Economic Development Index (IDEI) as a proxy for inclusive economic growth. This research was conducted in 38 regencies/cities in East Java, in the period 2014-2020, using the PVECM Model as an analysis tool. In addition, this research also provides strategies and policy formulations in an effort to increase inclusive economic growth. The results show that in the long-term DAU and GDP per capita have a significant positive effect on inclusive development. Meanwhile, in the short term, DAK and GDP per capita have a positive insignificant effect. It can be concluded that the balancing fund supports inclusive economic development in East Java. Keywords: intergovernmental transfer funds, inclusive economic development index, inclusive economic growth

The Increasing Importance of Intergovernmental Transfer Revenue in Local Finance in Poland and the Flypaper Effect

The article explores the growing trend of fiscal recentralization in Polish local finance, evident in the increase of intergovernmental transfers, leading to expanded budgetary expenditures, known as the "Flypaper Effect" (FPE). It aims to identify the causes and extent of the FPE in Polish municipalities and cities with county rights from 2010 to 2020, using descriptive and panel data analyses. Empirical research confirms the presence of the FPE in Polish local governments, more pronounced in rural municipalities than in urban counterparts and cities with county rights. The rise in public budgetary expenditures results from limited fiscal autonomy and the ongoing process of recentralization in public finance, further amplifying the FPE. The strength of the FPE varies depending on the specific types and characteristics of intergovernmental transfers. Additionally, the article highlights significant flaws in Poland's local funding legislation and its consequences, proposing potential paths for local finance reforms. In conclusion, it underscores the increasing trend of fiscal recentralization in Polish local finance driven by the FPE and emphasizes the pressing need for reforms to address these challenges.

Financing Local Governments in South Africa

The intergovernmental fiscal architecture for local governments in South Africa is a product of the negotiations in the late 1990ties to end apartheid, a thorough consideration at the time of what funding system for local government would serve a democratic South Africa the best, and the many developments that the system has undergone since its inception around the turn of the century. The architecture reflects South Africa’s integrated system of multilevel government. The national government has a virtual monopoly on all taxes, and provinces almost rely almost entirely on transfers. Municipalities fund their budgets with own revenue, complemented by an equitable share of national revenue and conditional grants. This contribution sets out the considerations that influenced the system of financing local government, designed to usher in democracy at local level. It then examines the framework for own revenue generation by municipalities as well as the system for determining intergovernmental transfers. It considers practical challenges with the implementation of this framework, the extent to which the assumptions that underpin the architecture are still valid, and the system’s capacity to respond to changing circumstances.

Assessing Factor Influence on Interbudgetary Transfers Income to Municipal Budgets

The article proposes an approach to studying and assessing the influence of factors on the volume of interbudgetary transfers income to municipal budgets. The relevance of the work is predetermined by the need to find ways to increase the replenishment of municipal budgets through the means of influence available for municipalities in order to fulfill their obligations and further territorial progress, including due to the unstable economic situation. Municipalities in Russia are in conditions of high dependence on incomes from higher-level budgets due to limited opportunities to strengthen their own revenue base, needing to attract as much gratuitous revenue as possible to their budgets. However, the aspects that have the greatest impact on the growth of intergovernmental transfers to the budget change over time and require elaboration. The aim of the work is to identify influencing factors that have a positive effect on increasing the incomes of interbudgetary transfers to municipal budgets, as well as to establish the degree of their influence on the volume of financial assistance provided. The study was carried out using industry-wide methods of system analysis with using statistical tools; the objects of the study were municipalities of the Samara region. The revenues of municipal budgets were analyzed, including to identify emerging trends. In addition, an assessment of factors and the degree of their influence on increasing the revenue base of municipalities in terms of gratuitous revenues from the subfederal level was carried out on the basis of correlation and regression analysis, including a dynamic comparison of the calculated models based on the results of 2012 and 2022. The key factors that have the greatest impact on the replenishment of municipal budgets through interbudgetary transfers have been identified, which has become an element of work’s scientific novelty. The results of the study can be used in the development of municipal policy in the field of interbudgetary relations, as well as become the basis for further study on a national scale.

Assessing Factor Influence on Interbudgetary Transfers Income to Municipal Budgets.

The article proposes an approach to studying and assessing the influence of factors on the volume of interbudgetary transfers income to municipal budgets. The relevance of the work is predetermined by the need to find ways to increase the replenishment of municipal budgets through the means of influence available for municipalities in order to fulfill their obligations and further territorial progress, including due to the unstable economic situation. Municipalities in Russia are in conditions of high dependence on incomes from higher-level budgets due to limited opportunities to strengthen their own revenue base, needing to attract as much gratuitous revenue as possible to their budgets. However, the aspects that have the greatest impact on the growth of intergovernmental transfers to the budget change over time and require elaboration. The aim of the work is to identify influencing factors that have a positive effect on increasing the incomes of interbudgetary transfers to municipal budgets, as well as to establish the degree of their influence on the volume of financial assistance provided. The study was carried out using industry-wide methods of system analysis with using statistical tools; the objects of the study were municipalities of the Samara region. The revenues of municipal budgets were analyzed, including to identify emerging trends. In addition, an assessment of factors and the degree of their influence on increasing the revenue base of municipalities in terms of gratuitous revenues from the subfederal level was carried out on the basis of correlation and regression analysis, including a dynamic comparison of the calculated models based on the results of 2012 and 2022. The key factors that have the greatest impact on the replenishment of municipal budgets through interbudgetary transfers have been identified, which has become an element of work’s scientific novelty. The results of the study can be used in the development of municipal policy in the field of interbudgetary relations, as well as become the basis for further study on a national scale.

Fiscal decentralisation and the attenuating effects of inter‐governmental transfers and economic development on corruption in China

AbstractThe consensus in the literature is that fiscal decentralisation is a means to reduce corruption. For China, the attenuating effects of fiscal decentralisation are often enhanced by other factors. This paper argues that prior findings serve to facilitate the design of anti‐corruption measures but they do not address why individuals may engage in corruption. This is especially as individual evidence suggests that engaging in corruption is against professional ethos in China. This paper suggests that intergovernmental transfers and the relative level of economic development of where a public servant is serving influence the decision of whether to engage in corruption. Specifically, intergovernmental transfers and a higher level of local economic development directly affect the resources that a local administration has. In turn, this affects the extent to which one may realise their motivations for a career in the public sector. Empirical estimates for 1998–2013 serve to support the hypothesis.Points for practitioners Fiscal decentralisation mitigates the prevalence of corruption in China in conjunction with other complimentary factors. But engaging in corruption is inconsistent with motivations for a public sector career which include engaging in work for society's greater benefit. Corruption may emerge because public servants feel that they may be unable to achieve their aims for joining the public sector because of local resource constraints. Empirical findings suggest that increased resources to local administrations from intergovernmental transfers and economic development may discourage public servants from deviating from their stated career motivations, that is, engaging in corruption.

Intergovernmental Transfers and Local Revenues Again—A Relook at the Ghanaian Local Government Case

This paper revisits options for strengthening local governance by increasing own revenues in local government jurisdictions. Using stochastic frontier and recursive structural equation methods, the paper estimates the effects of central government transfers and tax effort on own revenues in the Ghanaian local government system. Results show that contrary to some recent findings that transfers reduce own revenues for local jurisdictions in Ghana, increasing transfers to local jurisdictions increases (rather than reduces) own revenues in Ghana. Further, local government performance in public service provision was found to be critical for increasing own revenues. Making the Ghanaian local government system more sustainable thus requires increasing central government transfers and providing technical support to strengthen the relationship between available public services and own revenues.

Does Fiscal Decentralization Reduce Poverty? An insight from provincial level analysis in Pakistan

The present study has been designed to check the effect of fiscal decentralization (FD) on the poverty levels in Pakistan. Three measures of FD, namely intergovernmental transfers, provincial government revenues, and expenditure, are used in this study. Furthermore, the effect of FD is checked on the poverty levels separately in four provinces of Pakistan. Poverty levels are measured with the help of the Multidimensional Poverty Index (MPI) and the percentage of poor households with a value under 35 according to the International Wealth Index (IWI). This study has used panel data from 1990 to 2020 for the model in which poverty is measured through IWI value. Data from 2004 to 2020 has been used for the model in which poverty is measured through MPI. Feasible Generalized Least Square (FGLS) has been used to obtain the regression results by avoiding the problem of serial correlation and heteroscedasticity. The study's results highlighted that two measures, namely intergovernmental transfers and provincial government expenditures, have a nonlinear relationship with poverty. An increase in intergovernmental transfers and provincial government expenditures reduces poverty at a decreasing rate at first. Then, an increase in both variables results in the form of a higher level of poverty. Moreover, revenue decentralization at the provincial level increases poverty initially and reduces poverty after a critical point.

Grant Schemes and Pork-Barrel Politics in Local Government Funding in Hungary

The article investigates the extent of political favouritism in the central financing of local governments in Hungary between 2015 and 2018. An investigation of various transfers and the role of both mayor and member of parliament (MP) in the granting of funds enabled me to map how grant schemes relate to pork-barrelling. The rewarding of core supporters is observable with regard to discretionary intergovernmental transfers, while the political alignment affects the distribution of EU funds; thus, these constitute the primary mechanisms for acknowledging and sharing credit with local leaders. When a grant scheme requires municipalities to file an application for funding, local governments in opposition receive fewer grants.

Local Governments, Pandemic Aid, and Community Violence Intervention

Expenditures on police departments account for significant portions of local government budgets in the United States. Yet activism on police reform and changing views on the causes of violence have called into question law enforcement's role in public safety. While intergovernmental transfers have historically supported traditional policing, the American Rescue Plan Act's Coronavirus State and Local Fiscal Recovery Funds (CSLFRF) affords cities the opportunity to disrupt the status quo by providing them with the federal funds and flexibility to reshape their public safety policies around Community Violence Interventions (CVIs). This article examines how 13 cities that participated in a White House convened collaborative used CSLFRF aid to support CVIs. Our analysis reveals significant variation in how these cities in allocated CSLFRF dollars to CVI programs, suggesting that the combination of federal aid and White House encouragement has thus far led to incremental policy changes, whose durability remains an open question.

Natural disasters and local government finance: Evidence from Typhoon Haiyan

This paper examines how natural disasters affect local public finances and their interplay with intergovernmental transfers and external resources. Exploiting the randomized nature of the 2013 Typhoon Haiyan, one of the most devastating natural disasters in recent history, we document its causal effect on the local government fiscal dynamics. Combining data on local government finance with reports on the level of damages and using difference-in-differences with instrumental variable to analyze the data, we show that local public revenue and expenditures remain largely unaffected, except for debt payments. However, we find important heterogeneity in local revenue responses: poorer municipalities raised comparatively lower revenue in the aftermath of the Typhoon. We also provide evidence that external funding did not lead to lower tax collection efforts, but instead leads to higher local expenditures, suggesting that disaster aid does not cause a moral hazard problem in local governments' spending decisions.

The Impact of Intergovernmental Transfers on Fiscal Behaviour of Local Government in Ethiopia

This paper examines the effect of intergovernmental fiscal transfers on the fiscal behaviour of local governments in Ethiopia for the period 2004-2018. The empirical findings suggest that central government grants bolster state-level employment and expenditure. However, grants from the central government to states do not crowd out state-level revenue collection. Hence, this paper argues that fiscal decentralisation in Ethiopia has mostly, at least in theory, taken the form of devolution of the power to tax and spend public money. However, on average state-level revenue can only finance up to 26 percent of their annual expenditure. As a result, fiscal federalism in Ethiopia appears to be a delegation of spending responsibilities. It must be considered in a decentralized tax system, but with a transfer scheme and political hierarchy. The results are robust to alternative econometric estimation techniques.

A sustainable differentiated funding model for South African district municipalities

Background: South African district municipalities supply, inter alia, basic social goods in order to realise socio-economic rights and promote sustainable development in their local communities. This requires adequate funding, which may be in the form of own generated revenue and intergovernmental transfers. However, despite legislated functions, many district municipalities are regarded as financially distressed and unable to deliver on their constitutional mandates.Aim: This study sought to develop a sustainable differentiated funding model for district municipalities that will enable them to deliver on their constitutional mandates.Methods: This empirical study followed a positivist paradigm and used questionnaires to solicit the views of selected municipal officials from all district municipalities on the efficacy of the current funding model against the key principles that underpin a successful funding framework for South African municipalities.Results: The results of this study indicated that the funding district municipalities receive and generate is not in line with their constitutional mandates, which in turn, negatively affects their financial condition. Thus, there is a necessity to reconstruct the current funding model.Conclusion: This study recommends a clear specification of C1 and C2 district municipal powers and functions, and that the current funding model change from applying a blanket approach and rather consider the different geographical areas and circumstances for C1 and C2 district municipalities.Contribution: This empirical study contributes to the broader body of scientific knowledge on the local government financial governance by addressing the funding model for South African district municipalities in a practical manner.

Do intergovernmental transfers accelerate the formation of zombie firms? A study based on fuzzy regression discontinuity analysis

Intergovernmental transfers are an important source of revenue for local governments, while governments’ revenue and expenditure practices are considered to be a deep-seated cause of zombie firm formation. Based on Chinese county-level panel data from 1999 to 2007, this study employs a policy experiment on the qualification for classification of China's national poverty counties in 1994 and analyzes the impact and mechanism of intergovernmental transfers on the formation of local zombie firms using the fuzzy regression discontinuity method. It is found that the proportion of local zombie firms will increase by 0.7 units and 3.2 units, respectively, when the share of general and earmarked transfers increases by 1 unit, confirming that intergovernmental transfers contribute to the formation of zombie firms. The results remain robust to different zombie firm identification methods. Further analysis also demonstrates that when local governments receive fiscal transfer payments with less autonomy, tax effort will increase, which eventually affects firms’ production and operations. The subsequent higher total burden caused by the increased tax collection and management leads to the formation of zombie firms. This study proposes a theoretical construct and intuitive evidence for accelerating the elimination of zombie firms and improving the fiscal transfer system in China.

Against the tide: how changes in political alignment affect grant allocation to municipalities in Hungary

The 2019 local election in Hungary accelerated the trend of centralization, marked by a simultaneous reduction in available local funds and an increase in discretionary transfers to local governments. This paper, utilizing a dataset encompassing all over 3000 municipalities from 2015 to 2020, employs fixed-effect estimations and a regression discontinuity design to explore how election outcomes influenced central decisions on intergovernmental transfers. Generally, larger municipalities are more susceptible to political influence, particularly in the allocation of discretionary grants, whereas smaller settlements appear less affected by political shifts. Changes in political alignment triggered a rewarding policy for municipalities that remained or converted to aligned status, resulting in an additional 86.4% and 65.2% of discretionary funds, respectively, relative to those converting to or remaining unaligned. Our research establishes that political influence in intergovernmental transfers has intensified since 2019, offering valuable insights for the upcoming 2024 election.

The Education Component and the Inclusion of the Enrolment Survival Measure: Provincial Equitable Share (PES)

This paper investigates the intergovernmental transfer systems in South Africa, more specifically, the underlying determinants and formula of the unconditional grants of the education component of the Provincial Equitable Share (PES). The PES formula is a weighted shares formula that depends on the demographic shares of the provinces (population) to determine the equitable share outcomes to be transferred to individual provinces. We find that the variables used have two main weaknesses: Firstly, the enrolment variable, which could be contaminated with school repeats and dropouts, is too broad to be an effective measure for representing the real beneficiaries of the transfers. Secondly, infrequent updates about the school-age cohort population variables render the desired PES grant transfers for education outdated as well as serially inconsistent. The paper also provides an analysis of the PES formula’s mathematical construct, followed by a few suggested variables to improve the relevance and accuracy of the formula of the revenue transfer. One such improvement is demonstrated by the inclusion of the Enrolment Survival Measure (ESR). More research and data are required to extrapolate nuanced results and to understand the socio-economic impacts of adopting these new variables in the PES formula going forward.

INTERBUDGETARY RELATIONS IN THE SYSTEM OF BUDGET REGULATION

Introduction. The article is devoted to the study of the essence of interbudgetary relations in the system of budgetary regulation, key aspects of their regulation, instruments of interbudgetary relations and their application in Ukraine under martial law. The purpose of the article. The purpose and objective of the article is to study the essence and relevance of the problem of formation of interbudgetary relations under martial law. Results. The author analyzes the approaches and defines various aspects of the essence of intergovernmental fiscal relations based on the literature. The characteristics of different approaches to the interpretation of the essence of the concept of ‘intergovernmental fiscal relations’ are presented. The mechanism of horizontal equalization of the tax capacity of the territory is outlined according to the Budget Code of Ukraine. The mechanism of transferring intergovernmental transfers from the state budget to local budgets and intergovernmental transfers between local budgets is determined. The author considers the types of subsidies and subventions provided from the State budget to local budgets. Their amounts are analyzed. It is proved that the system of horizontal financial equalization redistributes financial resources in favor of those local authorities which have an imbalance and provides partial compensation for the losses of local budgets of territorial communities from the lack of personal income tax. Conclusions. It is concluded that the financial basis for the development of any state is budgetary funds. Interbudgetary relations are the main instrument for ensuring the proper functioning of the national budget system.

Tendências de financiamento da Atenção Primária à Saúde em uma capital brasileira

Abstract Established in 2019, the Previne Brasil Program (PPB), the current PHC financing model under the Ministry of Health, comprises four payment criteria. Except for the population-based financial incentive, these criteria vary and are linked to municipal performance in achieving PHC indicators. This study aimed to assess the trend in the availability of PHC funds in a Brazilian capital. This quantitative, analytical, longitudinal study was based on secondary information from intergovernmental transfers. Analyses were conducted using the R program, with a significance level set at p<0.05. Considering the entire period, the results revealed a significant upward trend in costing financial transfers. Weighted capitation was the criterion that most impacted the costing block and remained stable, whereas pay-for-performance and strategic actions indicated a significant fluctuation trend in monthly payments.