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Intergovernmental Transfers

Intergovernmental Transfers. Professor Roy Bahl Georgia State University (rbahl@gsu.edu). Definitions Why Use Transfers How To Design A Transfer System The Political Economy. Definitions. Intergovernmental transfers Grants Subsidies Shared taxes Local taxes Piggyback local taxes.

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Intergovernmental Transfers

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  1. Intergovernmental Transfers Professor Roy BahlGeorgia State University(rbahl@gsu.edu)

  2. Definitions • Why Use Transfers • How To Design A Transfer System • The Political Economy

  3. Definitions • Intergovernmental transfers • Grants • Subsidies • Shared taxes • Local taxes • Piggyback local taxes

  4. Definitions: Types of Intergovernmental Transfers • Unconditional or general • Conditional or specific (for capital and/or operating expenditures) • Non-matching • Matching • Open-ended • Close-ended • Direct cost reimbursement

  5. Why Have Intergovernmental Transfers?

  6. Justifications for Intergovernmental Transfers • Close the “fiscal gap” • Equalize fiscal capacity and need • Adjust for spillovers • Increase effectiveness of central expenditures • Political reasons

  7. How To Close A Fiscal Gap • More Transfers • More Local Raised Revenue • Local Expenditure Efficiency • Re-Assign Expenditure / Responsibility

  8. Equalization • The objective of an equalization transfer should be to protect (or guarantee?) some basic level of services

  9. What Do We Equalize? • Fiscal Capacity • Expenditure Needs • Capacity – Needs Gap

  10. The Special Case of Natural Resources Revenue Sharing

  11. Natural Resource Revenue Sharing: The Case for More Centralization • The Stability Argument • The Disparities Argument • The Local Capacity Argument • The National Treasure Argument

  12. Natural Resource Revenue Sharing: The Case for More Decentralization • The Cost Reimbursement Argument • The Heritage Argument • The Conflict Resolution Argument

  13. Design Issues For Intergovernmental Transfers

  14. How Can Intergovernmental Transfers be Decentralizing? • Revenue Adequacy • Certainty • Unconditional

  15. How Can Intergovernmental Transfers be Centralizing? • No Transparency In Vertical Sharing • Ad Hoc Distributions • Uncertainty and Year-To-Year Changes • Strict Conditions

  16. Alternative Forms of Intergovernmental Transfers

  17. Goals of Central Government • Control Local Finances • Equalize Services and Fiscal Capabilities among Localities • Stimulate Expenditures for a Particular Function or Overall Tax Effort • Increase Local Tax Effort • Minimize Administrative Costs

  18. Goals of Local Government • Maintain Control over Local Finances • Plan Efficient Budget • Increase Adequacy of Local Revenue Flow • Minimize Administrative Costs

  19. Intergovernmental Grant Lessons • Desired outcomes should drive design • One grant/transfer instrument cannot accomplish multiple objectives • Expect changes over time • Is “distributable pool” a discretionary element in the central budget or an entitlement of local government?

  20. Intergovernmental Grants: How Not To Do It! • Deficit Grants • Complicated Formulae • No Transparency • No Continuity • Base it on The Amount Spent • No Evaluation

  21. The Special Problem of Transition • The Need for a Phase-In Plan • Separating the Pieces • The Learning Curve for Local Governments • Hold Harmless Provisions • Education • Implementation Planning • Central Leadership

  22. The Political Economy of Transfers • President • Parliament • Ministry of Finance • MOHA • Line Ministries • Urban Local Government • Rural Local Government

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