Fiscal Decentralisation

Fiscal Decentralisation

Is Fiscal Decentralization Delivering on its Promises? A Review of the Theory and Practice in Developing Countries
G. Mascagni, IDS Working Paper No. 466 (2016)
This paper analyzes whether the theoretical benefits of fiscal decentralisation are achieved in practice. After providing an overview of the main issues and challenges in the design and implementation of fiscal decentralisation, the paper reviews the existing evidence on the impact of fiscal decentralisation on economic and political outcomes at the local level. By doing this it aims to assess whether decentralisation delivered on its promises.

Subnational governments around the world: Structure and finance
OECD and UCLG, Global Observatory on Local Finances (2016)
The OECD and (UCLG) launched  this statistical study in October 2016 at the
UCLG Summit in Bogota. It is a first attempt to build a  systematic data compilation on local finances on 101  countries in the world, based on quantitative and  qualitative data.

Looking Beyond Conventional Intergovernmental Fiscal Frameworks: Principles, Realities, and Neglected Issues
Paul Smoke, ADBI Working Paper No. 606 (2016)
The working paper analyses the poor Performance of fiscal decentralisation and intergovernmental fiscal Relations reforms in Terms of both policy formulation and outcomes.

The Impact of Fiscal Decentralization: A Survey
GEN Working Paper; Martinez-Vazquez, Jorge, Santiago Lago-Penas, Agnese Sacchi (2015)
This paper offers a comprehensive and updated review of the impact of fiscal decentralization on the economy, society and politics. It starts with the examination of two crucial and yet unsolved issues in the literature on decentralization: its proper measurement and the potential endogenety of fiscal decentralization with many of the variables of interest we are trying to investigate. Then the main findings in the existing literature on the effects of decentralization on a relevant list of socio-economic variables are discussed. The impact of fiscal decentralization reforms on political institutions is also considered.

World Bank Lending for Financial Inclusion: Lessons from Reviews of Select Projects
IEG / World Bank (2015)

Fiscal Decentralization and the Efficiency of Public Service Delivery
IMF (2015)
This study analyses the impact of fiscal decentralisation on the efficiency of public service delivery, focusing on spending on education and health. It finds that under certain conditions, fiscal decentralisation can serve as a policy tool to enhance the performance of public service delivery. It is further stated that for decentralisation to improve public service delivery, an adequate institutional environment is required.

Municipal Finances – A Handbook for Local Governments
World Bank (2014)

Fiscal decentralisation in developing countries: Lessons for Bangladesh
Chr. Michelsen Institute (CMI) (2014)

Decentralisation and Local Governance – Topic Guide
GSDRC (2014)

Real Innovation or Second-Best Solution? First experiences from results-based aid for fiscal decentralisation in Ghana and Tanzania
DIE (2014)

Republic of Burundi – Fiscal Decentralisation and Local Governance
World Bank (2014)
Despite the remarkable Progress achieved since the end of the conflict, Burundi still faces significant development challenges. Since 2005, the Government of Burundi has embarked on a potentially transformative process of decentralization, with the aim of strengthening social cohesion, improving local governance, and promoting access to basic infrastructure and service delivery.

Decentralización y Sostenibilidad Fiscal – El Caso de Colombia.
Fabio Sánchez Torres & Jannet Zenteno Gonzales (2011)

Fiscal Decentralization in Kenya: A Small Step or Giant Leap?
IDG (2011)

Macroeconomic challenges of fiscal decentralization in Latin America in the aftermath of the global financial crisis
Teresa Ter-Minassian Juan Pablo Jiménez (2011)

The consequences of fiscal decentralization on poverty and income equality
Cristian F Sepulveda, Jorge Martinez-Vazquez (2010)

Integrated Fiscal Decentralisation: Taking New Aid Modalities to the Local Level
German Development Institute (2010)
This document discusses the opportunities for and challenges to integrated fiscal decentralisation (IFD) from a domestic and a donor perspective, considering its potential in terms of alignment, coordination and the absorption of ODA funds.

Fiscal Decentralization and Sector-Funding Principals and Practices
DANIDA (2010)
This paper provides a general introduction to Fiscal Decentralisation (FD) and shares lessons learned from a number of developing countries. It explores the links between FD and sector funding, and discusses the use of various aid modalities for support to FD, based on experiences from countries in Africa, Asia and Latin America. The paper recommends that donors move away from a piecemeal approach in their support for FD reforms. It advocates comprehensive support to the entire FD strategy, and greater coherence and complementarity among different development partners.

Fiscal Decentralization and Options for Donor Harmonisation
DPWG-LGD (2009)
This paper seeks to provide options for the simplification and optimisation of fiscal systems and the harmonisation of development partners’ interventions. With regard to revenue generation at sub-national levels, its focus is on real property tax and market fees and taxes. The paper analyses selected examples of innovative modalities for performance-based grants, sub-national borrowing and public-private partnerships.

Macro Policy Lessons for a Sound Design of Fiscal Decentralization
IMF (2009)

Financing Local Government. Local Government Reform Series. London: Commonwealth Secretariat
The Commonwealth (2008)
This book looks at different approaches used to ensure that fiscal decentralisation takes place alongside administrative decentralisation. It explores the range of revenue sources available, the design systems of intergovernmental transfers between central and local government, and the kinds of rules and procedures necessary to ensure that local governments use their financial resources appropriately.

Fiscal Decentralisation and Poverty Reduction
UNDP (2005)
How can fiscal decentralisation contribute towards reducing poverty and achieving the Millennium Development Goals (MDGs)? This primer outlines the main principles of fiscal decentralisation and examines the links between fiscal decentralisation and poverty reduction. It argues that a well-crafted set of intergovernmental fiscal relations are vital for ensuring that decentralisation can contribute to poverty reduction.

Fiscal Decentralization and Financing Urban Governments: Framing the Problem
Robert D. Edel and Francois Vaillancourt (2001)

Fiscal Decentralization in Developing Countries_Current Concepts and Practice
Smoke (2001)

Local Public Financial Management

Urban Finance as a Game Changer for the SDGs
UNCDF (2017)
This publication provides an overview of the multi-dimensional challenges Least Developed Countries (LDCs) face in financing sustainable development at the local level from the political, institutional and economic perspectives. It explores the critical interlinkages between the different dimensions of urban finance, including revenue generation, financial management and long-term capital formation. Most importantly, it illustrates concrete country experiences in meeting related challenges through a wide range of case studies from local governments in LDCs. It is designed to promote knowledge sharing among stakeholders in urban finance and local sustainable development and its prime objective is to support government officials in the LDCs at the local and national levels to strengthen their urban finance frameworks and to create an enabling environment in their constituencies.

Public financial management in decentralised and decentralising environments
Paul Smoke (2015)

The Challenge of Local Government Financing in Developing Countries
UN Habitat (2015)
This report assesses and portrays the challenges and solutions concerning the ability of local governments for revenue mobilisation from local resources, identifies successful governance mechanisms for the efficient and equitable provision of public services in metropolitan areas and shares experiences and methods to making public service provision more viable. The document is structured along four different research areas: Mobilising financial resources for public service delivery and urban development, urban government revenues, innovative governance approaches in metropolitan areas of developing countries and on structuring service delivery in small urban areas. It concludes that local governments need access to sources of own tax revenues and non-tax revenues in order to fulfil their mandate and that there political economy considerations must be taken into account for assessing the options for effective local revenue reform and decentralisation in general.

Tax Reform – Topic Guide
GSDRC (2014)

Local Public Finance Management in the People’s republic of China
ADB (2014)

Electoral accountability and local government spending in Indonesia
World Bank (2014)
This paper takes advantage of the exogenous phasing of direct elections in districts and applies the double-difference estimator to measure impacts on (i) human development outcomes and (ii) the pattern of public spending and revenue generation at the district level. The analysis reveals that four years after the switch to direct elections, there have been no significant effects on human development outcomes. However, the estimates of the impact of Pilkada on health expenditures at the district level suggest that directly elected district officials may have become more responsive to local needs at least in the area of health.

Extractive Industries, Revenue Allocation and Local Politics
UNRISD (2014)
The success of a developmental strategy based on the extraction of resources is largely dependent on the share of revenues captured by the state from the extractive sector and the modalities that governments adopt to use and distribute these. In the last two decades, local populations and subnational governments have demanded a greater decentralisation of extractive industry (EI) related revenues but the mechanisms adopted varied widely across cases. The paper looks at the existing criteria and reform modalities adopted to allocate and use EI revenues, and examines the political bargains that enabled such distribution.

Summary: Strengthening the Accountability of Local Governance: How to Bridge the Gap between Decentralisation and Public Financial Management.
Klingebiel, S. and Mahn, T. (2013)

Participatory Budgeting: Core principles and Key Impacts
Wampler, Brian (2012)

West Midlands Local Authority Low Carbon Economy Programme – Local Authority Funding Guide
West Midlands (2011)

Adaptation Finance: Are Cities in Developing Countries Slipping through the Cracks?
UN-Habitat (2011)

Municipal Finance and Urban Development
UN-Habitat (2009)

EcoBudget: Introduction for Mayors and Municipal Councillors
UN-Habitat et al (2009)

What Determines the Quality of Local Financial Management? The Case of Tanzania
Jameson Boex and Matitu C. Muga (2009)

Local Public Financial Management
World Bank (2007)

Local Fiscal Discipline: Fiscal Prudence, Transparency, and Accountability
Alta Fölscher (2007)
Across the world, local governments are bearing increasing responsibility for the provision of public goods and services and the management of public moneys. This paper addresses the key questions:

  • What is local fiscal discipline?
  • What is the value of local government fiscal discipline?
  • What are the consequences of poor local fiscal discipline?
  • What institutions at the intergovernmental and local levels are important for local fiscal discipline?

The paper says that local governments must contend with many exogenous factors that affect their fiscal health. They are also highly vulnerable to national shocks and are often heavily dependent on sometimes unpredictable fiscal transfers from other levels of government.

Local Revenue Mobilisation

Revenue Mobilization and Management in Sectors – Background and Case Studies on user fees and charges in selected sectors
Center of Excellence in Finance (CEF), 2016
The report begins with a background chapter looking at the political economy of revenue raising in line ministries (water, health, environment, traffic). Serbia, Albania, Germany and Moldova contributed case studies, using user fees and charges as the revenue source for examination. Evidently, a number of factors hampered the smooth operation of fees and charges. These problem areas were reasonably consistent across countries and included:

  1. Out-of-date legal bases and fee levels.
  2. A proliferation of fees and charges many of which fail to cover their economic cost of operation.
  3. In some cases a lack of administrative capacity (including IT and payment enforcement capacity).
  4. Varying levels of engagement with those who are expected to pay the fees and charges.

The mobilisation of sub-national revenues is a decisive factor in the realisation of the 2030 Agenda
von Haldenwang, Christian / Armin von Schiller, GDI Briefing Paper 21/2016
This paper look at the increasing role of sub-national units in the mobilisation of domestic resources for the 2030 agenda. They are also at the forefront in the implementation of the global reform agenda.

VNG International’s program to increase internally generated revenues for local development
VNG International (2016)
At this year’s annual meeting Peter Jongkind, VNG International, presented the organisation’s new approach to support municipalities to improve their tax collection and service delivery. In doing so, this approach also promotes civic engagement and government accountability. Piloting the approach in municipalities in Ghana, VNG International found that it leads to improvements in tax management and service delivery.

Taxation, Livelihoods, Governance: Evidence from Nepal
Mallet, R., Acharya, G., Sturge, G. and Uprety, P.; SLRC and ODI (2016)
The authors of this report surveyed more than 1,000 households across two Nepalese districs, asking people about their livelihoods, experiences with taxation, and relationships with government. The results show that most households pay a marginal amount of tax, particularly in terms of formal taxes to the government. But while taxes may be low, qualitative research suggests that people continue to pay in other ways.  In the absence of an enabling environment the costs of development and public goods provision are essentially being passed down the chain to communities and individuals. The central argument of the report is that ultimately it is not the number of taxes or the amount paid that matters, but the terms of the bargain.

Formalising Land Rights in Developing Countries: Moving from Past Controversies to Future Strategies
‘Land Tenure and Development’ Technical Committee (2015)
This paper draws on the research findings and work undertaken by members of the ‘Land Tenure and Development’ Technical Committee and its partners. It highlights the political issues involved in formalising land rights, identifies the conditions for successful, sustainable and inclusive formalisation policies, and proposes possible courses of action that policy actors and their partners can use to enhance their procedures and strategies. Further, the report emphasises the role of local governments in the processes of formalising land rights as well as the importance of decentralised land tenure management measures.

Engaging the Private Sector in Public – Private Partnerships
ADB (2015)
Public–private partnerships are a valuable vehicle for governments to secure financing and expertise for infrastructure development. However, it will require a clear and stable environment of policies, regulations, and institutions. Infrastructure needs in Asia are enormous. Governments can mobilize additional financial resources and gain access to valuable expertise by structuring projects as public–private partnerships (PPPs). However, enticing the private sector into infrastructure requires good policies, expertise in developing well-structured projects, and supportive institutions. Negotiating agreements with a clear allocation of risks and responsibilities across various stakeholders is key to a successful partnership.

Renforcer les recettes fiscales locales pour financer le développement urbain en Afrique – Paroles d’acteurs locaux stratégies de 8 villes africaines
FMDV (2014)
Cette publication vient éclairer, à travers huit études de cas sur différentes villes africaines, la place prépondérante de la fiscalité locale dans la structure des budgets locaux et l’importance d’une remise à niveau de cette dernière pour un accès plus large à d’autres sources de financements complémentaires comme l’emprunt. A partir des solutions expérimentées localement et les points de blocage fréquemment soulevés par les élus locaux ainsi que leurs équipes techniques, des ateliers de formation seront prévus courant 2015 à destination des collectivités locales et de leurs partenaires.

Local government Taxation in Sub-Saharan Africa – A Review and an Agenda for Reserach
CMI (2014)
This literature review on local government revenue systems in Africa concludes that there is a need for consistent domestic tax legislation, a clear boundary between local and central taxation, and the principle of segmentation to be applied in local taxation as it has been at the national level. There is potential to increase local revenues from other types of taxes (e.g. consumption of utilities) and non-tax revenue sources (e.g. fees, levies) but tax legislation must be kept as simple as possible to prevent overburdening local governments. Sharing revenues between local and central government can ensure better service provision but this must not introduce uncertainties for local governments on the amounts they expect and/or on the timing of the transfers.

Money Matters – Local Government Finance in the People’s Republic of China
ADB (2014)

Local Government Revenue Mobilisation in Anglophone Africa
CMI (2013)
This literature review examines opportunities and constraints facing local revenue mobilisation in Anglophone Africa. The paper finds that local government taxation not only brings in revenue, but can also play an important role in shaping state-society relations because it brings many people into direct contact with public authorities. Different revenue sources that are dealt with in this paper are property taxes, business licenses, market fee and various user charges.

Sub-national Revenue Mobilization in Peru
IDB; Gustavo J. Canavire-Bacarreza, Jorge Martinez-Vazquez and Cristian Sepulveda (2012)
This paper analyses the problem of sub-national revenue mobilisation in Peru and proposes several policy reforms to improve collection performance while maintaining a sound revenue structure. In particular, the paper analyses the current revenues of regional and municipal governments and identifies the main priorities for reform.

Tapping the Untapped Potential: GIZ Success Stories in Capacity Development for Local Revenue Enhancement in Sub-Saharan Africa
GIZ (2012)

Mobilisation des ressources financières locales – Documentation des registres fonciers urbains des communes du Benin
UN Habitat (2012)

Municipal tax base in Mozambique: high potential – low degree of utilisation
DIE / GDI (2012)

Grant financing of metropolitan areas: a review of principles and worldwide practices
World Bank (2012)

Financing the Resilient City
ICLEI; Brugmann (2011)
This paper presents a strategy for scaling climate change adaptation within urban areas. The strategy specifically focuses on the requirements for mobilizing large amounts of capital for adaptation and other urban risk reduction above and beyond the amounts that will likely be mobilized through new international adaptation funds. The paper, based on a report published by ICLEI–Local Governments for Sustainability, proposes a re-framing of the urban adaptation and disaster reduction challenge. The approach shifts the adaptation focus from risk reduction as a primary end in itself to a broader development focus on financing the performance of urban assets, areas and/or systems. This emphasis is elaborated through the concept of “resilience”, an urban design and investment metric that measures the ability of urban areas and their individual assets to perform for users and their investors under a wide range of conditions. The paper argues that such a performance-oriented approach provides a business logic that can attract conventional, private investment flows to climate and disaster risk reduction measures and thereby “mainstream” them.

Municipal Finance for Inclusive Development: Innovative models for funding infrastructure and services for state and local self governance
CLGF (2011)

Accessing Resources from the Adaptation Fund: The Handbook
UNFCCC (2011)

Philippines: Designing a Local Government Enhancement Fund
ADB (2011)

Performance-Based Grant Systems – Concept and International Experience
UNCDF (2010)

UCLG Gold Report: Local Government Finance: The Challenges of the 21st Century
UCLG (2010)

Adaptation and Mitigation_ What Financing is available for Local Government Investments in Developing Countries
Paulais & Pigey (2009)

Intergovernmental Transfers

Wok Bung Wantaim: Using Subnational Government Partnerships to Improve Infrastructure Implementation in Papua New Guinea
ADB (2016)
This report examines how existing implementation structures established under ADB and National Government investment programmes could be used to channel subnational government resources more effectively toward priority infrastructure investments. The report considers the legal and institutional issues associated with ADB expanding its subnational partnerships and proposes a number of coordinated engagement frameworks that are aligned with the Papua New Guinea Public Financial Management Act (1996).

Intergovernmental Fiscal Transfers in Developing Countries: Case Studies from the Commonwealth
Alam, M. (eds) (2014)
This book, based on a study of current approaches to intergovernmental transfers (IGTs) in developing countries in the Commonwealth, identifies strengths and weaknesses of different approaches and lessons learned. It includes detailed case studies of India and Kenya. In order to overcome horizontal and vertical fiscal imbalances, IGT design should consider both the fiscal need and fiscal capacity of the devolved administrations. The report further provides recommendations on design, structure and governance of IGTs.

Planning Connecting and Financing Cities-Now
World Bank (2013)

Fiscal Decentralization and Intergovernmental Finance Reform as an International Development Strategy
Urban Institute (2009)
Is fiscal decentralisation and intergovernmental finance reform still relevant in international development? This paper argues that fiscal decentralisation reform should not be dismissed, despite inconclusive evidence on its effectiveness in achieving development impacts. Rather, more research and better knowledge-sharing are needed.

Intergovernmental Fiscal Transfers: Principles and Practice. Public Sector Governance and Accountability Series
World Bank (2007)
This book considers design issues and worldwide practices regarding intergovernmental fiscal transfers and their implications for efficiency and equity in public services provision as well as accountable governance. It provides practical guidance on designing output-based transfers that emphasise bottom-up, client-focused, and results-based government accountability and equalisation transfers to ensure regional fiscal equity, as well as the institutional arrangements for implementing such transfers.

Sub-national Borrowing

Debt Dynamics, Fiscal Deficit, and Stability in Government Borrowing in India: A Dynamic Panel Analysis
Das, P.; ADB (2016)
States in India are endowed with expenditure autonomy but fiscal performance has been deteriorating and diverging across Indian states. This paper analyses whether the composition of expenditure of the subnational governments has an impact on the degree of indebtedness. This research indicates that, apart from the budget structure, the state-specific factors affecting fiscal performance play an important role in government borrowing. Curiously enough, government borrowing is more responsive to revenue expenditure than capital outlay and has more growth-augmenting effect through revenue expenditure.

Subnational Debt, Insolvency, and Market Development
World Bank (2013)

Subnational Fiscal Policy in Large Developing Countries: Some Lessons from the 2008–09 Crisis for Brazil, China and India
World Bank (2012)

Laws for Fiscal Responsibility for Subnational Discipline
World Bank (2011)

Linking Cities to Finance: Overcoming Bottlenecks to Financing Strategic Urban Infrastructure Investments
CDIA (2010)

How Should Subnational Government Borrowing Be Regulated? Some Cross-Country Empirical Evidence
IMF (2007)
How effective are borrowing constraints on fiscal balances? This paper analyses panel data in order to assess the most effective borrowing constraints for containing local fiscal deficits. It concludes that no single institutional arrangement is superior under all circumstances. Institutional characteristics, particularly the degree of vertical fiscal imbalance, the existence of any bailout precedent, and the quality of fiscal reporting will affect the suitability of certain arrangements.