System Of Intergovernmental Fiscal Relations Research Articles

Regional disparities and fiscal federalism in Russia

This paper examines how regional disparities have evolved in Russia and how Russia’s system of intergovernmental fiscal relations is managing these disparities. Regional disparities have fallen over the past two decades but remain relatively high. Socioeconomic outcomes remain worse in lagging regions despite faster growth and convergence in income levels. The twin shocks of COVID-19 and lower oil prices appear to have impacted richer regions disproportionately. Compared to other large countries with federal systems of government, Russia stands out with its high reliance on direct taxes as a revenue source for its regions. Russian policymakers have made efforts to reduce regional disparities by designing a federal transfer system that intends to close vertical imbalances, achieve redistribution, and insure regions against both common shocks (“stabilization”) and idiosyncratic ones (“risk-sharing”). Transfers from the federal budget to the regions provide some redistribution by reducing the dispersion in real per capita fiscal spending, but also tend to be associated with lower growth. The Russian fiscal system offers degrees of redistribution and risk sharing of around 26 and 18%, respectively — with in-kind social transfers contributing the most. Finally, federal transfers in the aggregate tend to be procyclical and are also fairly unresponsive to shocks to regions’ own revenues.

Tax Revenues of Local Budgets in Unitary States: a Case Study of Japan

This article discusses municipal self-government in Japan by focusing on tax receipts of local budgets. Revenues and expenditures of local governments of unitary states, such as Japan, roughly corresponds to subnational budgets of federal states. In unitary frameworks, however, local authorities enjoy greater autonomy. In Japan, local governments account for a large share of public spending and tax revenues. Tax re-venues are decentralised and taxes play a significant role in consolidated budget receipts. The centralised system of local administration and finance that evolved in late nineteenth-century Japan was based on arrangements prevailing in Germany at that time. In the second half of the twentieth century, the system of inter-governmental fiscal relations was rebuilt according to the Anglo-Saxon decentralised model, resulting in more autonomy (including tax administration) given to local authorities. The current version of the local public finance in Japan has several salient characteristics and combines both centralisation and decentralisation features. The tax base for the key prefectural and municipal taxes overlaps the tax base for the national income and consumption taxes. The main source of municipal revenue is the property tax. Financial equalisation is achieved through grants, essentially in the form of the local allocation tax (LAT), which is a percentage of national taxes that is channelled to prefectural and municipal budgets. Another important feature of local finance is that municipal governments cover a comparatively large share of expenditures by is-suing local bonds. The reform of local governance and inter-governmental fiscal relations conducted in the early 2000s increased the financial autonomy and tax receipts of municipalities. The reform’s results were positively received by the international community and may be interesting for several transitional and developing economies that are seeking to improve their system of local finance. For citation Pokrovskaia N.V., Belov A.V. Tax Revenues of Local Budgets in Unitary States: a Case Study of Japan. Journal of Tax Reform . 2020;6(1):73–89. DOI: 10.15826/jtr.2020.6.1.076. Article info Received February 14, 2020 ; Revised March 15, 2020 ; Accepted April 8, 2020

Institutional environment of budgetary regulation of social development

Relevance of the research topic. The search for new sources of economic growth at the stage of post-crisis development of the national economy determines the need for the development and implementation of an effective budget policy, since the financial system dysfunctions generated by the trends of financial globalization negatively affect the economic environment of the country. The change in the type of economic growth constitutes the necessity of modifying the budget regulation towards its proactive changes, which include transparency, effective tax incentives and increased availability of financial resources by improving existing methods and methods for implementing fiscal policy and improving the quality of the institutional environment. Formulation of the problem. Budgetary regulation needs to take into account the optimal balance between elements of the budget system and characteristics of cyclic economic development. This indicates the appropriateness of forming an institutional environment of fiscal policy, which should be aimed at ensuring the sustainable development of the national economy, promoting economic competitiveness, ensuring financial stability, effective protection of the domestic market and export support, infrastructure modernization, ensuring environmental protection, optimizing social protection of the population. and increasing its level and targeting. Analysis of recent research and publications. The work of foreign and domestic scholars such as A. Mazaraki [1], L. Lisyak [2], D. North [3], V. Makogon [4], M. Pasichnogo [5], I. Chugunova [6], S. Blankart, A. Smith, J. M. Keynes, A. Gritsenko, I. Zapatrina, I. Lukyanenko, I. Lyutoha, V. Fedosova, S. Yurii and others, are devoted to studying the institutional principles of fiscal policy making in the country and to improve the system of budgetary regulation of social development. Selection of unexplored parts of the general problem. Institutional transformation of fiscal policy is an effective tool for increasing the level of interaction between all members of budget relations. It is necessary to strengthen their coordination in achieving the goals of social development in the process of performing functions and tasks, in accordance with the strategic goals of the domestic economy. Setting the task, the purpose of the study. The objective of the study is to characterize the institutional environment of the state budget policy. The purpose of the study is to reveal the theoretical and methodological foundations for the formation of the institutional environment of budgetary regulation of social development and to identify the directions of its improvement. Method or methodology for conducting research. The article uses a set of methods and approaches of scientific knowledge, among which it should be noted: systematic, structural, generalization and scientific abstraction. Presentation of the main material (results of work). The peculiarities of formation of the institutional environment of budget regulation of social development are determined. The directions of increasing the institutional interaction of the components of the budget system in the conditions of the transformation of the economy are singled out. The main elements of the budget architectonics are described to achieve a balanced and sustainable socio-economic development of the state. The field of application of results. Organization and conducting of scientific researches on formation of institutional principles of the budget policy of the country. Conclusions according to the article. In order to ensure sustainable economic growth, it is expedient to determine the basic principles of forming an institutional environment for budget regulation of social development, consisting of combining the components of the adaptive institutional architecture of the budgetary system and instruments of fiscal regulation, optimizing the structure of budget revenues and expenditures, the system of intergovernmental fiscal relations and medium-term budget planning, and forecasting on the basis of establishing the relationship between the trends of financial globalization and priorities state financial policy, taking into account the volatility of the economy and the lagged effects will promote sustainable economic growth.

Mechanisms for reforming intergovernmental fiscal relations in conditions of economic instability

One of the most topical issues in the sphere of state regulation of environmental security in the region in conditions of economic instability is the improvement of the system of interbudgetary equalization and the search for effective models for redistributing budget funds. The article analyzes the essence and peculiarities of interbudgetary relations in Ukraine. In order to determine the most optimal mechanism for interbudgetary equalization, a centralized, decentralized and mixed model for regulating intergovernmental fiscal relations is studied. The analysis of changes in the structure of tax revenues in state and local budgets is carried out, the main advantages and threats for business entities due to the increase in the level of autonomy of local authorities are determined. Despite the low level of state regulation of environmental safety, as a means of maintaining the balance of social and natural structures, the prerequisite for the formation of regional stability it is proposed measures to improve the process of reforming the system of intergovernmental fiscal relations.

Die verbogene Verfassung — zur Neuregelung der Bund-Länder-Finanzbeziehungen ab 2020

The federal legislature has adopted a new system of intergovernmental fiscal relations from 2020 onwards which will change the federal structure of Germany considerably. In particular, the abolition of the horizontal equalisation among the Länder (Länderfinanzausgleich) and its replacement by an equalisation of fiscal power (Finanzkraftausgleich) within the distribution of the revenues of sales taxes changes the underlying structure of the German federal state fundamentally. The new legislation indicates this shift of the federal balance: the federation will take over the construction of motorways completely. Federal authorities also gain new powers in controlling the use of federal funds by the Länder. Instead of a balance of the federation and the Länder we will get a dominance of the federation.

Fiscal Decentralization and Local Finance Reforms in Bulgaria: A Review of Ten Years’ Experience

The changes in the system of intergovernmental fiscal relations in Bulgaria commenced at the beginning of the 1990s with the enactment of legislation on local self-governance and the first timid attempts at an expenditure and revenue assignment between the levels of government. The process began to gather momentum in 2002 when the government adopted a Concept paper on fiscal decentralization and an action plan on its implementation. A number of key reforms were legislated with the aim of broadening the municipal own-sources revenue base and increasing local government revenue autonomy. Dedicated action to set a decentralized public finance system in place resulted in a visible improvement of financial self-sufficiency of local authorities. Although still low in a European context, the values of fiscal decentralization indicators have gradually risen over the years, which is indicative of the success of the reform. The purpose of this paper is to overview the development of the process of fiscal decentralization in Bulgaria in the period 2003-2012 through examining its key aspects – expenditure responsibilities, revenue assignment and intergovernmental transfers – and to assess the policy options for addressing the current problems of local finance system. DOI: 10.5901/mjss.2014.v5n23p342

Federal Reform under the Grand Coalition

This article compares the approaches of the first (1996–69) and second (2005–09) Grand Coalition to the problems of a renewal of Germany's system of intergovernmental fiscal relations. The conditions and challenges were different. The first Grand Coalition was wanted by its partners, and they had a common agenda, the second one was unwanted and forced by electoral circumstances. It lacked a common agenda. The fiscal reform of 1969 finished finally what the Parliamentary Council had left open in 1949 and followed the path of interlocking federalism. Its general theme was ‘uniformity of living conditions’. The challenges of the second Grand Coalition were different: public debts and budgetary restrictions. In order to cope with these the second Grand Coalition introduced the ‘debt brake’. The debt brake is a part of the change of paradigm of German federalism towards less ‘equality of living conditions’ and can partly be seen as the reversal of the 1969 reform.

Kontinuitäten und Diskontinuitäten in Entscheidungsprozessen über föderale Finanzbeziehungen oder: Die ewig Unvollendete

AbstractThe system of intergovernmental fiscal relations in the Federal Republic of Germany has been always extremely difficult to regulate. The Parliamentary Council of 1948/49 left this task unfinished, and the first fiscal reform of 1955 was only partly successful. The 1969 reform seemed to be more successful, but it became clear quite soon that intensified interlocking politics created new problems for the decision-making process. Also, it created incentives to finance public policies by debts. The financing of German unity was based on the 1969 regulations. In recent years the overburdening of the existing rules became obvious. Growing problems caused a shift of paradigm in the direction of less interlocking politics and financing.

Russian Federalism at the Critical Stage of Development

Transformations in the sphere of federal relations concern the most important directions of the reforming processes in the country. However, not all proposed and actually developing components of the federal reform seem well-argued and corresponding to long-term, strategic interests of the Russian statehood. The basic course of reform should meet the objective requirements of further decentralization of governing economic and social processes and the need to ensure strengthening the responsibility of RF subjects’ executive bodies and local self-management for steady social and economic development of their territories. The solution of these problems calls for a new model of federal policy of regional development, specification of some important components of the municipal reform as well as inserting certain amendments into the system of intergovernmental fiscal relations in order to stir up their stimulating function.

Subnational Taxes in Developing Countries: The Way Forward

This paper reviews the literature and evidence on the most appropriate structure of regional and local taxes in developing countries. A good subnational tax system is critical to an effective and sustainable system of intergovernmental fiscal relations - a need that has become increasingly important around the world as more and more public services are being delivered through subnational governments. In most developing countries potentially sound and productive taxes exist that are suitable for regional and local governments: property taxes, taxes on motor vehicles, surcharges on national personal income taxes, payroll taxes, and even, in some cases, regional value added taxes and properly designed local business taxes.

The Determinants of the Incidence of Intergovernmental Grants: A Survey of the International Experience

Abstract Although the presence of objective formula-based grants is an important component of a stable, equitable and efficient system of intergovernmental fiscal relations, the final incidence of grants is not always according to what is stated in the formula because there are other intervening institutional factors. Furthermore, the intergovernmental grant mechanism itself is often a function of the same interests or forces that ultimately drive the incidence of grant resources. This paper relates the horizontal allocation of intergovernmental grants directly to their potential underlying determinants, including normative policy issues, voter choice arguments and political considerations. An international comparison of empirical incidence studies reveals that besides local expenditure needs and local fiscal capacity, other factors including political influence and a jurisdiction’s size play important and consistent roles in determining the horizontal allocation of per capita intergovernmental grants

The Determinants of the Incidence of Intergovernmental Grants: A Survey of the International Experience

Although the presence of objective formula-based grants is an important component of a stable, equitable and efficient system of intergovernmental fiscal relations, the final incidence of grants is not always according to what is stated in the formula because there are other intervening institutional factors. Furthermore, the intergovernmental grant mechanism itself is often a function of the same interests or forces that ultimately drive the incidence of grant resources. This paper relates the horizontal allocation of intergovernmental grants directly to their potential underlying determinants, including normative policy issues, voter choice arguments and political considerations. An international comparison of empirical incidence studies reveals that besides local expenditure needs and local fiscal capacity, other factors including political influence and a jurisdiction's size play important and consistent roles in determining the horizontal allocation of per capita intergovernmental grants.

India's System of Intergovernmental Fiscal Relations

This paper examines several aspects of India's system of Intergovernmental Fiscal Relations (IGFR). It first reviews the origins and context within which the IGFR system was established and examines how it has evolved. It describes the nature of the system, including assignment of powers and functions, intergovernmental fiscal transfers and the principles that guide their design. It examines several other dimensions of the IGFR system, such as its interface with policy imperatives, evolution of norms, and recent institutional developments. It concludes with an assessment of lessons learned so far, and key challenges that lie ahead.

Designing Intergovernmental Fiscal Relations: Some Insights from the Recent Italian Reform

AbstractDuring the last decade, the Italian system of intergovernmental fiscal relations has been involved in a radical process of reform that is still under way. The reform has assigned Regions new taxing powers and has introduced a new system of interregional transfers. This paper provides a review of the recent reform and offers some tentative answers to the issues still open, relying on a series of simulations and projections. A number of conclusions have been reached. First, when the long‐run performance of the new financing systems is investigated, regional resources may no longer be adequate to meet future health needs. Second, the incentives for active tax policies seem either to prove too weak or even to cause undesirable results. Finally, the complete devolution to the Regions of some significant public expenditure functions risks strengthening the polarisation of financial flows between the Northern and Southern Regions in the long run.

Designing Intergovernmental Fiscal Relations: Some Insights from the Recent Italian Reform

During the last decade the Italian system of intergovernmental fiscal relations has been involved in a radical process of reform that is still under way. The reform has assigned to Regions a mix of new autonomous taxes and the sharing of national taxes, has abolished discretionary transfers and any constraints in the use of regional resources, and finally has introduced a new system of interregional transfers based on some generally recognized equalizing criteria. The paper provide a review of these recent developments and offer some tentative answers to the issues still open, also relying on a series of simulations and projections. A number of conclusions have been reached. Firstly, when the long-run performance of the new financing systems are investigated, regional resources may result no longer adequate to meet the future health needs, and this may lead to a weakening of the NHS, by allowing large inter-regional differences in health standards, high mobility of patients from poor to rich Regions, and hard restrictions of the access to health services for non-residents. Secondly, the incentives provided by the reform to active tax policies seem either to prove too weak or even to cause undesirable results. Finally, the complete devolution to the Regions of some relevant public expenditure functions, that is currently under discussion in Italy, risks strengthening the polarisation of financial flows between the Northern Regions and the Southern Regions in the long-run.

Ecological public functions and fiscal equalisation at the local level in Germany

The concept of sustainability requires the acknowledgement and appropriate financing of ecological, economic and social public functions at all levels of government. Whereas the significance of socio-economic functions has a comparably long tradition in federal systems, the respective consideration of ecological functions is still waiting to be fully realised. The aim of this article is to analyse the roles fiscal federalism and fiscal instruments can play in addressing ecological public functions assigned to decentralised jurisdictions in federal systems. For this purpose, an investigation of intergovernmental fiscal relations and their significance for the local level is carried out by way of example for the Federal Republic of Germany. Based on a status quo analysis of the various German fiscal equalisation laws at the local level, the article presents options for systematically integrating neglected ecological functions and indicators into the existing legal framework. The empirical analysis shows that end-of-the-pipe and infrastructure-related ecological functions are already strongly integrated by way of conditional grants. However, precautionary functions such as nature and resource conservation issues are still largely absent. Therefore, a comprehensive consideration of ecological public functions in Germany calls for the integration of nature conservation issues and respective indicators into the system of intergovernmental fiscal relations.

The Challenge of Expenditure-Assignment Reform in Russia

This paper is an examination of the critical role the assignment of expenditure responsibilities must play in building the Russian Federation. The fiscal federalism system and the expenditure assignments inherited from the Soviet Union were not truly decentralized. All the real decisions were made back in Moscow. Although subnational governments now have authority to create their own budgets, past processes and institutions still undermine local autonomy. However, the most serious threat to the Russian Federation comes from the lack of a stable assignment of responsibilities. Primarily for budgetary convenience, the federal government has jettisoned certain expenditure responsibilities onto oblast and rayon governments in the past two years, putting Russian intergovernmental relations on a perilous path. So far, the Parliament and the Executive have failed to recognize that a stable expenditure assignment is the first and necessary step in the design of a lasting system of intergovernmental fiscal relations. Instead, the political system has concentrated entirely on revenue assignments which have not endured. The author analyzes several sets of issues that must be addressed in the design of a stable assignment of expenditure responsibilities in the Russian Federation, including the reassignment of social expenditures and social safety-net responsibilities, the reassignment of capital spending responsibilities, and the divestiture of public services by state enterprises.