Intergovernmental Relations and Fiscal Discipline: Between Commons and Soft Budget Constraints

Giuseppe Pisauro

No 2001/065, IMF Working Papers from International Monetary Fund

Abstract: Fiscal decentralization is likely to entail a bias in the budget process toward higher public expenses and deficits. The paper reviews lessons drawn from the theoretical literature and international experience on the design of intergovernmental relations. The institutional setup should address the dual problem of "common tax resources" and "soft" budget constraints, where policies devised to correct one problem may exacerbate the other. An approach based on full tax autonomy of lower-tier governments and reliance on market discipline, not supplemented by self-imposed constitutional limits, is not advisable. More effective seems to be a cooperative approach with some preeminence granted to the central government.

Keywords: WP; national government; budget rule; government deficit; federal government; fiscal federalism; soft budget constraint; bailout; budgetary institutions; government stage; public finance; finance minister; agenda-setting power; financial support; subnational government; public funds; government budget rule; Budget planning and preparation; Government asset and liability management (search for similar items in EconPapers)
Pages: 30
Date: 2001-05-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (29)

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