Fragmentation and Vertical Fiscal Imbalances Lessons from Moldova

December 19, 2014

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Serhan Cevik. Fragmentation and Vertical Fiscal Imbalances Lessons from Moldova, (USA: International Monetary Fund, 2014) accessed December 23, 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

Using a novel municipality-level panel dataset, this paper investigates the empirical characteristics of vertical fiscal imbalances (VFIs) in Moldova over the period 2005–13. The results show that the extent of variation in VFIs across 898 municipalities can be explained by the level of per capita income, fiscal capacity, and demographic characteristics, as well as the central government’s fiscal behavior that reflects fiscal constraints and policy preferences at the national level. Political affiliation does not appear to be a significant factor, and the results are inconclusive in terms of direction. While some model specifications show larger VFIs when the mayor of a municipality belongs to the same party ruling the central government, other models suggest better coordination and thus lower VFIs. Altogether, these findings underscore the need for well-coordinated reforms to create economies of scale, enhance revenue collection, and improve the composition of spending at the subnational level.

Subject: Budget planning and preparation, Fiscal federalism, Fiscal policy, Population and demographics, Public financial management (PFM), Revenue administration

Keywords: Budget balance, Budget planning and preparation, Central government, Dependency ratio, Effort variable, Finance statistics, Fiscal decentralization, Fiscal federalism, Fiscal policy stance, Global, Mean value, Restructuring revenue administration, Revenue, Revenue effort, Subnational governments, Vertical fiscal imbalance, Vertical fiscal imbalances, WP

Publication Details

Pages:

20
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2014/233
Stock No:

WPIEA2014233
ISBN:

9781498313414
ISSN:

1018-5941

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