Effect of Decentralization Strategy on Macroeconomic Stability in Thailand

Kanokpan Lao-Araya ()
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Kanokpan Lao-Araya: Asian Development Bank

No 17, ADB Economics Working Paper Series from Asian Development Bank

Abstract: This research study examines how the Thai central government can finance decentralization and make local governments accountable for their own finances. The Thai government's medium-term fiscal stance is not conducive to planned fiscal decentralization, and local governments will not immediately assume responsibility for providing public services previously provided by the central government. This study proposes that the central government must improve revenue collection efficiency without hindering economic growth by gradually increasing the value added tax rate over the medium term. Thailand has adopted an unbalanced approach to fiscal decentralization. Local governments are guaranteed revenue from transfers from the central government but need not assume increased responsibility for providing public services. This encourages local authorities to spend irresponsibly in expectation of bailouts by the central government. This study recommends that the Thai central government impose hard budget constraints on local governments.

Keywords: decentralization; fiscal responsibility; local government finance; revenue collection; value added tax (search for similar items in EconPapers)
JEL-codes: H70 H71 H77 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2002-08-01
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Persistent link: https://EconPapers.repec.org/RePEc:ris:adbewp:0017

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