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

May 1, 2001

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Guiseppe Pisauro. Intergovernmental Relations and Fiscal Discipline: Between Commons and Soft Budget Constraints, (USA: International Monetary Fund, 2001) accessed December 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Budget planning and preparation, Expenditure, Fiscal federalism, Fiscal policy, Government asset and liability management, Public financial management (PFM)

Keywords: Agenda-setting power, Bailout, Budget planning and preparation, Budget rule, Budgetary institutions, Federal government, Finance minister, Financial support, Fiscal federalism, Government asset and liability management, Government budget rule, Government deficit, Government stage, National government, Public finance, Public funds, Soft budget constraint, Subnational government, WP

Publication Details

Pages:

30
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2001/065
Stock No:

WPIEA0652001
ISBN:

9781451848687
ISSN:

1018-5941

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