Intergovernmental Fiscal Transfers - World Bank Internet Error Page PDF
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PUBLIC SECTOR GOVERNANCE AND ACCOUNTABILITY SERIES INTERGOVERNMENTAL FISCAL TRANSFERS PRINCIPLES AND PRACTICE Edited by ROBIN BOADWAY and ANWAR SHAH INTERGOVERNMENTAL FISCAL TRANSFERS Introduction to the Public Sector Governance and Accountability Series Anwar Shah,Series Editor A well-functioning public sector that delivers quality public services consistent with citizen pref- erences and that fosters private market-led growth while managing fiscal resources prudently is considered critical to the World Bank’s mission ofpoverty alleviation and the achievement of the Millennium Development Goals.This important new series aims to advance those objec- tives by disseminating conceptual guidance and lessons from practices and by facilitating learning from each others’experiences on ideas and practices that promote responsive(by matching public services with citizens’preferences),responsible(through efficiency and equity in service provision without undue fiscal and social risk),and accountable(to citizens for all actions) public governance in developing countries. This series represents a response to several independent evaluations in recent years that have argued that development practitioners and policy makers dealing with public sector reforms in developing countries and,indeed,anyone with a concern for effective public gov- ernance could benefit from a synthesis ofnewer perspectives on public sector reforms.This series distills current wisdom and presents tools of analysis for improving the efficiency, equity,and efficacy ofthe public sector.Leading public policy experts and practitioners have contributed to this series. The first 13 volumes in this series, listed below, are concerned with public sector accountability for prudent fiscal management;efficiency,equity,and integrity in public ser- vice provision;safeguards for the protection ofthe poor,women,minorities,and other dis- advantaged groups;ways ofstrengthening institutional arrangements for voice,choice,and exit;means ofensuring public financial accountability for integrity and results;methods of evaluating public sector programs,fiscal federalism,and local finances;international prac- tices in local governance;and a framework for responsive and accountable governance. Fiscal Management Participatory Budgeting Public Services Delivery Budgeting and Budgetary Institutions Public Expenditure Analysis Local Budgeting and Financial Management Local Governance in Industrial Countries Tools for Public Sector Evaluations Local Governance in Developing Countries Accountability for Performance Intergovernmental Fiscal Transfers: Macrofederalism and Local Finances Principles and Practice Citizen-Centered Governance PUBLIC SECTOR GOVERNANCE AND ACCOUNTABILITY SERIES INTERGOVERNMENTAL FISCAL TRANSFERS PRINCIPLES PRACTICE AND Edited by ROBIN BOADWAY and ANWAR SHAH THE WORLD BANK Washington,D.C. ©2007 The International Bank for Reconstruction and Development / The World Bank 1818 H Street,NW Washington,DC 20433 Telephone:202-473-1000 Internet:www.worldbank.org E-mail:[email protected] All rights reserved 1 2 3 4 10 09 08 07 This volume is a product ofthe staffofthe International Bank for Reconstruction and Development / The World Bank.The findings,interpretations,and conclusions expressed in this volume do not necessarily reflect the views ofthe Executive Directors ofThe World Bank or the governments they represent. The World Bank does not guarantee the accuracy ofthe data included in this work. The boundaries,colors,denominations,and other information shown on any map in this work do not imply any judgement on the part ofThe World Bank concerning the legal status ofany territory or the endorsement or acceptance ofsuch boundaries. Rights and Permissions The material in this publication is copyrighted.Copying and/or transmitting portions or all ofthis work without permission may be a violation ofapplicable law.The International Bank for Reconstruction and Development / The World Bank encourages dissemination ofits work and will normally grant permission to reproduce portions ofthe work promptly. For permission to photocopy or reprint any part ofthis work,please send a request with complete information to the Copyright Clearance Center Inc.,222 Rosewood Drive, Danvers, MA 01923, USA; telephone: 978-750-8400; fax: 978-750-4470; Internet: www.copyright.com. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office ofthe Publisher,The World Bank,1818 H Street,NW,Washing- ton,DC 20433,USA;fax:202-522-2422;e-mail:[email protected]. ISBN-10:0-8213-6492-8 ISBN-13:978-0-8213-6492-5 eISBN-10:0-8213-6493-6 eISBN-13:978-0-8213-6493-2 DOI:10.1596/978-0-8213-6492-5 Library ofCongress Cataloging-in-Publication Data Intergovernmental fiscal transfers:principles and practice / edited by Robin Boadway, Anwar Shah. p.cm.– (Public sector governance and accountability series) Includes bibliographical references and index. ISBN-13:978-0-8213-6492-5 ISBN-10:0-8213-6492-8 1.Intergovernmental fiscal relations.2.Intergovernmental finance.3.Revenue sharing. 4.Grants-in-aid.I.Boadway,Robin W.,1943- II.Shah,Anwar.III.Series. HJ197.I58 2007 352.73–dc22 2005057765 Contents Foreword xv Preface xvii Acknowledgments xix Contributors xxi Overview xxvii Robin Boadway and Anwar Shah CHAPTER 1 A Practitioner’s Guide to Intergovernmental Fiscal Transfers 1 Anwar Shah Instruments ofIntergovernmental Finance 2 Achieving Results-Based Accountability through Performance-Oriented Transfers 9 Designing Fiscal Transfers:Dividing the Spoils or Creating a Framework for Accountable and Equitable Governance? 15 Institutional Arrangements for Fiscal Relations 44 Lessons from International Practices 48 References 51 v vi Contents Part I The Principles 2 Grants in a Federal Economy: A Conceptual Perspective 55 Robin Boadway Three Views ofthe Role ofGrants 57 Designing the System ofFederal-Regional Fiscal Relations 65 Notes 74 3 Equity and Efficiency Aspects of Interagency Transfers in a Multigovernment Framework 75 Paul Bernd Spahn The Case for Interjurisdictional Equity 76 Designing Equalization Schemes 78 The Case for Intragovernmental Efficiency 93 Designing Interagency Relations and Microtransfers 96 Summary 104 Notes 105 References 106 4 Achieving Economic Stabilization by Sharing Risk within Countries 107 Jürgen von Hagen Principles ofRegional Risk Sharing 109 Moral Hazard and the Political Economy of Regional Insurance 114 Empirical Evidence 117 The Macroeconomics ofRegional Risk Sharing and Stabilization 123 Conclusions 125 Annex:A Model ofRegional Stabilization and Risk Sharing 126 Notes 129 References 129 Contents vii 5 Grants and Soft Budget Constraints 133 Marianne Vigneault The Soft Budget Constraint Problem Defined 136 Implications ofSoft Budget Constraints 137 The Soft Budget Constraint Problem in Theory 138 The Soft Budget Constraint Problem in Practice: Country-Level Evidence 145 Lessons Learned 162 Concluding Comments 167 Notes 168 References 169 6 The Political Economy of Interregional Grants 173 Motohiro Sato Political Motive and Political Competition 176 Fragmented Government and Rent Seeking 181 Intergovernmental Relations 185 The Commitment Problem 189 Institutional Reform 193 Notes 196 References 197 7 The Incentive Effects of Grants 203 Michael Smart The Taxonomy ofGrants 204 Vertical Transfers 205 Horizontal Transfers 211 Concluding Comments 220 Notes 221 References 221 viii Contents The Impact of Intergovernmental Fiscal Transfers: 8 A Synthesis of the Conceptual and Empirical Literature 225 Shama Gamkhar and Anwar Shah Impact ofIntergovernmental Transfers on Local Government Behavior:Theoretical Hypotheses 226 Empirical Approaches to Measuring the Impact of Intergovernmental Transfers on Local Fiscal Behavior 231 Concluding Remarks 252 Notes 254 References 255 Part II The Practice 9 The Legal Architecture of Intergovernmental Transfers: A Comparative Examination 259 Sujit Choudhry and Benjamin Perrin Law and the Political Economy ofFiscal Federalism 260 Case Studies 262 Conclusions 284 Notes 289 References 290 Institutional Arrangements for 10 Intergovernmental Fiscal Transfers and a Framework for Evaluation 293 Anwar Shah Institutional Arrangements for Intergovernmental Transfers 294 Evaluating Institutional Arrangements for Equalizing Transfers Using a New Institutional Economics Framework 304 Comparing Alternate Institutional Arrangements Using a New Institutional Economics Framework 306 From Theory to Practice:How Accurate Are the Predictions ofthe New Institutional Economics? 310 Concluding Remarks 316 Notes 316 References 317
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