The Incentive Effects of Conditional and Unconditional Transfers on Local Own Revenue Generation: Empirical Evidence from Moroccan Municipalities

Jean Brun () and Maria El khdari ()

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Abstract: The fiscal incentives literature emphasizes how the design of transfer systems has a significant implication on the behavior of local governments within decentralized systems. The empirical findings on the relationship between intergovernmental transfers and the incentives they create for local revenue generation are inconclusive and differ from country to country. Given the lack of data on local public finances, this type of study rarely involves developing countries. Using a unique and rich socio-economic and public finance data covering a large set of Moroccan municipalities over the period 2005 to 2009, this paper contributes to the new generation of fiscal federalism literature by assessing the fiscal incentive effects of two types of transfers: general purpose transfers (unconditional) defined by a formula and specific purpose transfers (conditional) allocated on an ad-hoc basis. After correcting for the endogeneity problem, our findings support the existence of a significant incentive effect of unconditional transfers and a less robust effect of conditional transfers. Suggesting that transfers from the central government complement local own revenues by encouraging Moroccan municipalities to collect more revenues.

Keywords: Decentralization; Local public finance; Fiscal incentives; Intergovernmental transfers; Morocco; Pan (search for similar items in EconPapers)
Date: 2016-03-08
New Economics Papers: this item is included in nep-ara
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01285021
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Citations: View citations in EconPapers (9)

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Working Paper: The Incentive Effects of Conditional and Unconditional Transfers on Local Own Revenue Generation: Empirical Evidence from Moroccan Municipalities (2016)
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