Macroeconomic Management and the Devolution of Fiscal Powers

International Monetary Fund

No 2002/076, IMF Working Papers from International Monetary Fund

Abstract: Several of the transition economies are devolving fiscal authority to subnational governments at a time when it is also important to consolidate fiscal policy. This can be problematic because, without appropriate care, the central government's ability to determine the level and structure of revenues, public spending, and borrowing may well diminish as fiscal policy is devolved. This paper focuses on how the center can maintain its ability to conduct fiscal policy while devolving revenue, spending, and borrowing powers to lower levels of government. Empirical evidence shows that countries with good governance have maintained fiscal control despite a high degree of fiscal devolution. And decentralization is associated with better fiscal outcomes for middle-income countries with strong governance. Fiscal management issues are explored in four key areas: budget coordination mechanisms at the macro level tax-effort incentives and revenue-sharing mechanisms expenditure control and hard-budget constraints and criteria and rules for borrowing.

Keywords: WP; government balance; levels of government; tax revenue; federal government; government decision; government function; usingthe ratio; fiscal policies; state and local government; intergovernmental relations; government instrument; Fiscal federalism; Fiscal consolidation; Europe (search for similar items in EconPapers)
Pages: 46
Date: 2002-04-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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