Fiscal federalism and macroeconomic governance : for better or for worse?
AbstractIn analyzing the institutional environment for macroeconomic management, the author discusses monetary policy, fiscal policy, and subnational borrowing. In analyzing the macroeconomic dimensions of securing an economic union, he discusses the regulatory environment, tax coordination, transfer payments and social insurance, intergovernmental fiscal transfers, and regional equity. Finally, he discusses the challenges of globalization and draws lessons from experience about fiscal reform in developing countries. Among them: 1) Monetary policy is best entrusted to an independent central bank with a mandate for price stability. 2) Fiscal rules accompanied by"gatekeeper"intergovernmental councils or committees provide a useful framework for fiscal discipline and coordination of fiscal policy. 3) The integrity and independence of the financial sector contribute to fiscal prudence in the public sector. 4) To ensure fiscal discipline, governments at all levels must be made to face the financial consequences of their decisions. 5) Societal norms and consensus about the roles of various levels of government and limits to their authority are vital to the success of decentralized decisionmaking. 6) Tax decentralization is a prerequisite for subnational access to credit markets. 7) Higher-level institutional assistance may be needed to finance local capital projects. 8) An internal common market is best preserved by constitutional guarantees. 9) Intergovernmental transfers in developing countries undermine fiscal discipline and accountability while building transfer dependencies that cause a slow economic stagnation of fiscally disadvantaged regions. 10) Periodic review of jurisdictional assignments is essential to realign responsibilities with changing economic and political realities. 11) Finally, and contrary to a common misconception, decentralized fiscal systems offer more potential improved macroeconomic governance than do centralized fiscal systems.
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Bibliographic InfoPaper provided by China Economics and Management Academy, Central University of Finance and Economics in its series CEMA Working Papers with number 584.
Length: 51 pages
Date of creation: 2008
Date of revision:
Publication status: Published in Annals of Economics and Finance, May 2014, pages 200-240
Other versions of this item:
- Anwar Shah, 2014. "Fiscal federalism and macroeconomic governance : for better or for worse?," Annals of Economics and Finance, Society for AEF, vol. 15(1), pages 200-240, May.
- Shah, Anwar, 1998. "Fiscal federalism and macroeconomic governance : for better or for worse?," Policy Research Working Paper Series 2005, The World Bank.
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