Subnational Fiscal Autonomy Research Articles

Reforming autonomy? The fiscal impact of the Swiss federal reform 2008

ABSTRACT The Swiss federal reform 2008 (NFA) has been a major undertaking in the recent history of the Swiss federation, with the re-allocation of policy tasks being a key component of the reform. So far, research has focused in particular on the decision-making process of the reform. This paper focuses on the fiscal impacts by asking whether the re-allocation of tasks has changed the vertical distribution of fiscal resources and whether these changes have increased fiscal autonomy of subnational governments. The paper shows that subnational government expenditure as well as non-earmarked federal government grants have increased slightly. At the same time, however, revenue has not increased correspondingly. This has imposed strong limitations on subnational fiscal autonomy and has led to a deterioration rather than an improvement of the situation of subnational governments in federal Switzerland. The paper concludes with suggestions for further research on constitutional change in federal states.

Sub-National Fiscal Autonomy, Infrastructure Investment and Regional Disparities

This paper focusses on the relationship between subnational fiscal autonomy, transport infrastructure investment and regional disparities in 30 OECD countries over the period 1995-2011. Subnational fiscal autonomy is approximated by the revenue share of autonomous taxes. A fixed effects panel estimation reveals that SNG tax autonomy significantly contributes to regional convergence although its impact is small when compared to the effect of transport infrastructure investment. Subnational expenditure on education and economic affairs does not impact spatial disparities.

Central-Subnational Fiscal Relation and Constitutional Safeguard of Subnational Fiscal Autonomy: A Comparative Study on Unfunded Mandates and Intergovernmental Grants in China and the US

Since China’s Tax-Sharing System Reform in 1994, the so-called “Chinese-Style Fiscal Federalism” has been formed, and the issues of conditional grants and unfunded mandates have become essential elements in China’s central-subnational governments’ relation. The defects of legislations in this area have led to tremendous chaotic phenomena. Recent budgetary and fiscal reforms have struggled to redistribute the spending burden between the central and subnational governments, thus to some extent strengthening subnational governments’ fiscal autonomy.As the US also bears a fiscal federalism structure, how it deals with federal-state fiscal relation and safeguards subnational fiscal autonomy through its constitutional regime is inspiring to China. Since different constitutional contexts lead to different central-subnational fiscal relation, this article first examines the constitutional framework of US and China’s central-subnational relation, and then reviews their historic trajectories of fiscal centralization and decentralization. Next, it compares constitutional and legal methods for preserving the subnational fiscal autonomy in the US and China from two specific aspects, the unfunded mandate and intergovernmental grant system. Finally, this article draws some conclusions of their concurrence and differences, and considers what China may (or may not) draw on from American experience.

Subnational Fiscal Autonomy in a Developmental State: The Case of Ethiopia

Due to different factors, federations exhibit significant variation in their respective forms, natures and degrees of decentralization. Regardless of these differences, however, the necessity of a federal covenant, which bestows genuine autonomy on subnational governments, is not contested. Indisputably, a mere constitutional stipulation does not guarantee the financial autonomy of sub-national governments as the latter is influenced by the political economy narratives of a government. Though the fallings of Ethiopian “developmentalism” on the effective functioning of the federal system are multifaceted, this article scrutinizes its impact on the fiscal (tax) autonomy of subnational governments. Looking at the contemporary “developmental-oriented” measures of the federal government vis-a-vis the constitutionally dictated autonomy of regions to generate own-source revenue, the article argues that the fiscal autonomy of subnational governments is highly constrained due to the adoption of the developmental state paradigm.

Local governments’ fiscal balance and privatization in transition countries1

AbstractSeveral transition economies have undertaken fiscal decentralization reforms over the past two decades along with liberalization, privatization and stabilization reforms. Theory predicts that decentralization may aggravate fiscal imbalances, unless the right incentives are in place to promote fiscal discipline. This study uses a panel of 20 transition countries over 19 years to address a central question of fact: Did privatization help to promote local governments’ fiscal discipline? The answer is clearly ‘no’ for privatization considered in isolation. However, privatization and subnational fiscal autonomy along with reforms to the banking system – restraining access to soft financing – may prove effective at improving fiscal balances among local governments.

Local Governments’ Fiscal Balance, Privatization, and Banking Sector Reform in Transition Countries

Several transition economies have undertaken fiscal decentralization reforms over the past two decades along with liberalization, privatization, and stabilization reforms. Theory predicts that decentralization may aggravate fiscal imbalances, unless the right incentives are in place to promote fiscal discipline. This paper uses a panel of 20 transition countries over 19 years to address a central question of fact: Did privatization help to promote local governments’ fiscal discipline? The answer is clearly ‘no’ for privatization considered in isolation. However, privatization and subnational fiscal autonomy along with reforms to the banking system - restraining access to soft financing - may prove effective at improving fiscal balances among local governments.

Local Governments' Fiscal Balance, Privatization, and Banking Sector Reform in Transition Countries

Several transition economies have undertaken fiscal decentralization reforms over the past two decades along with liberalization, privatization, and stabilization reforms. Theory predicts that decentralization may aggravate fiscal imbalances, unless the right incentives are in place to promote fiscal discipline. This paper uses a panel of 20 transition countries over 19 years to address a central question of fact: Did privatization help to promote local governments’ fiscal discipline? The answer is clearly ‘no’ for privatization considered in isolation. However, privatization and subnational fiscal autonomy along with reforms to the banking system - restraining access to soft financing - may prove effective at improving fiscal balances among local governments.

Fiscal decentralization and economic growth in the OECD

What impact, if any, does Fiscal Decentralization (FD) have on economic growth? Further investigations of the inter-relationships between FD and economic growth are timely given that government decentralization remains at the forefront of many Organization for Economic Cooperation and Development (OECD) policy agendas. This study incorporates a range of measures of FD to better account for the direct impact of different levels of subnational fiscal autonomy on economic growth. The analysis also considers the impact of previously omitted public sector decentralization variables that provide further indication of the extent to which Subnational Governments (SNG) are ‘closer to the people’ and potentially better able to account for local preferences in fiscal decision-making. Whilst little evidence of a direct relationship between FD and output growth is found, some evidence is found to suggest that federal systems tend to have lower growth rates than do unitary states, independent of their degree of decentralization, and that countries with more elected tiers of government generally have lower economic growth.

Fiscal Autonomy and Total Government Expenditure: An Austrian Case-study

The ongoing debate on the efficiency of a federal system versus a centralized system has lead to a diverse and unclear empirical picture of the effects of fiscal decentralization on public sector growth. For analyzing these effects it is crucial to consider the sub-national decision power on taxing and spending. In the current paper, we test for the effects of fiscal autonomy on total government expenditure using time series from 1955 to 2007 for Austria. Determinants of government expenditure are economic growth, fiscal illusion of policy makers, and the unemployment rate. We additionally account for different degrees of sub-national fiscal autonomy. Our econometric results suggest that the often-hypothesized dampening effects of fiscal autonomy cannot be corroborated for the Austrian system.

La delega per attuare l'art. 119 della Costituzione

- The Italian Parliament has approved a new arrangement in regional and local financing. Due to wide economic and social differences in the country a larger decentralization entails serious problems in equalization. To cope with expenditures responsibilities of Regions, Provincial Authorities and Communes are divided in more important or fundamental functions and less important or discretionary functions. The former are equalized more generously "according to needs" and the latter only partially "according to fiscal capacities". This distinction seems not totally consistent with the Constitution as well not totally justifiable in terms of autonomy of territorial authorities and unity of their budgets. The question of revenue assignment is substantially unsolved. Regional and local taxes are not large enough and too much weak to warrant a true subnational fiscal autonomy. Last year the central state has abolished the communal tax on owner-occupied residential property. As a result accountability and fairness of municipal governments has been damaged. The new law does not remedy this error. In future regional and local authorities will extensively rely on a system of revenue-sharing.

Internal Trade Barriers in India

A sub-set of the costs and benefits of sub-national fiscal autonomy in federations is examined with the major focus being on road check-posts. The examination is done with reference to Indian states and using a partial equilibrium, diagrammatic analysis. Empirical analyses of the revenue impact of abolition of ‘fiscal frontiers’ in the European Union in 1993, and the revenue performance of the state of Maharashtra in India, which has no check-posts, relative to other Indian states, point to the preliminary conclusion that road check-posts have positive revenue benefits that cannot be made good by other, information based, enforcement mechanisms. Possible ways of mitigating road check-post costs are reviewed and some issues relating to fiscal barriers requiring further analysis are identified.

Fiscal Decentralization and Subnational Fiscal Autonomy in Brazil: Some Facts of the Nineties

This paper considers some facets of the recent Brazilian experience in fiscal decentralization. For this purpose, it describes the pattern of fiscal decentralization in Brazil and, subsequently, discusses some events of the nineties pertaining to fiscal relations in the federation. Historically, Brazilian experience with fiscal federalism has been marked by ups and downs in the degree of fiscal decentralization. Satisfactory conciliation between the need to ensure a reasonable degree of financial autonomy for subnational governments, on one hand, and the requirement of coordinating fiscal instruments in order to serve national interests, on the other, has not yet been attained. The analysis of events of the nineties does not reveal a consolidated model of federalism but a transition process characterized by attempts to correct the aftermath of both excessive centralization and immoderate decentralization experienced in sequence in the past. The paper concludes that preservation of fiscal decentralization may require the imposition of restrictions on the autonomy of subnational governments, this time for economic rather than for political reasons.