Macroeconomic Management and the Devolution of Fiscal Powers

April 1, 2002

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Macroeconomic Management and the Devolution of Fiscal Powers, (USA: International Monetary Fund, 2002) accessed November 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

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.

Subject: Expenditure, Fiscal consolidation, Fiscal federalism, Fiscal policy, Revenue administration

Keywords: Europe, Federal government, Fiscal consolidation, Fiscal federalism, Fiscal policies, Government balance, Government decision, Government function, Government instrument, Intergovernmental relations, Levels of government, State and local government, Tax revenue, Usingthe ratio, WP

Publication Details

Pages:

46
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2002/076
Stock No:

WPIEA0762002
ISBN:

9781451849882
ISSN:

1018-5941

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