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The Impact of Intergovernmental Transfers on Fiscal Behaviour of Local Governments in Ethiopia

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  • Dejene Mamo, Bekana

Abstract

This paper examines the effect of intergovernmental fiscal transfers on the fiscal behaviour of local governments in Ethiopia for the period 2004-2018. The empirical findings suggest that central government grants bolster state-level employment and expenditure. However, grants from the central government to states do not crowd out state-level revenue collection. Hence, this paper argues that fiscal decentralisation in Ethiopia has mostly, at least in theory, taken the form of devolution of the power to tax and spend public money. However, on average state-level revenue can only finance up to 26 per cent of their annual expenditure. As a result, fiscal federalism in Ethiopia appears to be a form of delegation of spending responsibilities. It has to be considered in the context of a decentralised tax system, but with a transfer scheme and political hierarchy. The results are found to be robust to alternative econometric estimation techniques.

Suggested Citation

  • Dejene Mamo, Bekana, 2020. "The Impact of Intergovernmental Transfers on Fiscal Behaviour of Local Governments in Ethiopia," Working Papers 15770, Institute of Development Studies, International Centre for Tax and Development.
    • Handle: RePEc:idq:ictduk:15770
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    File URL: https://opendocs.ids.ac.uk/opendocs/handle/20.500.12413/15770
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    Keywords

    Economic Development; Finance; Governance;
    All these keywords.

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