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Sequencing fiscal decentralization

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  • Bahl, Roy
  • Martinez-Vazquez, Jorge

Abstract

While there is extensive knowledge about how to design fiscal decentralization policies, considerably less is understood about how a decentralization program should be sequenced and implemented. Countries embarking on decentralization often struggle with decisions about the essential components of decentralization, including the order of an introduction of decentralization policies, the number of years necessary to bring a full program on line, and the components of the transition strategy. The authors argue that the sequencing of decentralization policies is an important determinant of its success. The consequences of a poorly sequenced decentralization program can range from minor delays and complications to ineffectiveness and subsequent failing support of decentralization efforts, macroeconomic instability, and fundamental failure in public sector delivery. At a minimum, the strategy of"making it up as we go"will not lead to the same structure of decentralization as will a planned strategy. The paper raises two questions: First, is there an optimal sequencing for decentralization policies and implementation? The answer is that there is, and that following these sequencing rules can reduce the costs and risks of implementing fiscal decentralization. Second, to what extent do countries follow these optimal sequencing rules? The answer is, in general, they do not. The gap between theory and practice is a result of the complexity of sequencing design, which discourages fiscal planners from implementing the full process. In addition, sequencing requires a sustained discipline and vision for its implementation, as well as overcoming pressures from political actors, especially in developing countries.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3914.

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Date of creation: 01 May 2006
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Handle: RePEc:wbk:wbrwps:3914

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Keywords: Decentralization; Subnational Regional Economics; Economic Theory&Research; Teaching and Learning; Regional Rural Development;

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  1. Francisco Javier Arz & Jorge Martinez-Vazquez, 2003. "Descentralización en Latinoamérica desde una perspectiva de países pequeños: Bolivia, El Salvador, Ecuador y Nicaragua," International Center for Public Policy Working Paper Series, at AYSPS, GSU, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University paper0303, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  2. Tugrul Gurgur & Anwar Shah, 2008. "Localization and corruption: panacea or pandora's box?," CEMA Working Papers, China Economics and Management Academy, Central University of Finance and Economics 581, China Economics and Management Academy, Central University of Finance and Economics.
  3. Jorge Martinez-Vasquez & Jameson Boex, 2001. "Russia's Transition to a New Federalism," World Bank Publications, The World Bank, number 15248, August.
  4. Anwar Shah, 2008. "Fiscal federalism and macroeconomic governance : for better or for worse?," CEMA Working Papers, China Economics and Management Academy, Central University of Finance and Economics 584, China Economics and Management Academy, Central University of Finance and Economics.
  5. Tao Zhang & Heng-fu Zou, 1997. "Fiscal Decentralization, the Composition of Public Spending, and Regional Growth in India," CEMA Working Papers, China Economics and Management Academy, Central University of Finance and Economics 521, China Economics and Management Academy, Central University of Finance and Economics.
  6. Yingyi Qian & Barry R. Weingast, 1996. "China's transition to markets: market-preserving federalism, chinese style," Journal of Economic Policy Reform, Taylor & Francis Journals, Taylor & Francis Journals, vol. 1(2), pages 149-185.
  7. Jorge Martinez-Vazquez, 2005. "Making Fiscal Decentralization Work in Vietnam," International Center for Public Policy Working Paper Series, at AYSPS, GSU, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University paper0513, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  8. Hamid Davoodi & Heng-fu Zou, 1996. "Fiscal Decentralization and Economic Growth: A Cross-Country Study," CEMA Working Papers, China Economics and Management Academy, Central University of Finance and Economics 98, China Economics and Management Academy, Central University of Finance and Economics.
  9. Fisman, Raymond & Gatti, Roberta, 2002. "Decentralization and corruption: evidence across countries," Journal of Public Economics, Elsevier, Elsevier, vol. 83(3), pages 325-345, March.
  10. Charles E. McLure, Jr. & Jorge Martinez-Vazquez, 1998. "Intergovernmental Fiscal Relations in Vietnam," International Center for Public Policy Working Paper Series, at AYSPS, GSU, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University paper9802, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  11. Jorge Martinez-Vazquez & Robert McNab, 2001. "Fiscal Decentralization and Economic Growth," International Center for Public Policy Working Paper Series, at AYSPS, GSU, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University paper0101, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  12. Nirvikar Singh, 2004. "India’s System of Intergovernmental Fiscal Relations∗," Public Economics, EconWPA 0412006, EconWPA.
  13. G. Gulsun Arikan, 2004. "Fiscal Decentralization: A Remedy for Corruption?," International Tax and Public Finance, Springer, Springer, vol. 11(2), pages 175-195, 03.
  14. Gramlich, Edward M., 1993. "A Policymaker's Guide to Fiscal Decentralization," National Tax Journal, National Tax Association, vol. 46(2), pages 229-35, June.
  15. Singh, Nirvikar & Rao, Govinda, 2006. "Political Economy of Federalism in India," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780195686937, October.
  16. Jorge Martinez-Vazquez & Andrey Timofeev, 2005. "Choosing between Centralized and Decentralized Models of Tax Administration," International Center for Public Policy Working Paper Series, at AYSPS, GSU, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University paper0502, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  17. Jorge Martinez-Vazquez, 2002. "Asymmetric Federalism in Russia: Cure or Poison?," International Center for Public Policy Working Paper Series, at AYSPS, GSU, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University paper0304, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  18. Tao Zhang & Heng-fu Zou, 2001. "Fiscal decentralization, public spending, and economic growth in China," CEMA Working Papers, China Economics and Management Academy, Central University of Finance and Economics 58, China Economics and Management Academy, Central University of Finance and Economics.
  19. James Alm & Robert Aten & Roy Bahl, 2001. "Can Indonesia Decentralise Successfully? Plans, Problems And Prospects," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, Taylor & Francis Journals, vol. 37(1), pages 83-102.
  20. Baoyun Qiao & Jorge Martinez-Vazquez & Yongsheng Xu, 2002. "Growth and Equity Tradeoff in Decentralization Policy: China's Experience," International Center for Public Policy Working Paper Series, at AYSPS, GSU, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University paper0216, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  21. Qiao, Baoyun & Martinez-Vazquez, Jorge & Xu, Yongsheng, 2008. "The tradeoff between growth and equity in decentralization policy: China's experience," Journal of Development Economics, Elsevier, Elsevier, vol. 86(1), pages 112-128, April.
  22. Jameson Boex & Jorge Martinez-Vazquez, 2004. "Developing the institutional framework for intergovernmental fiscal relations in decentralizing LDCs," International Center for Public Policy Working Paper Series, at AYSPS, GSU, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University paper0402, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  23. World Bank, 2004. "State Fiscal Reforms in India : Progress and Prospects," World Bank Other Operational Studies 14609, The World Bank.
  24. Wallace E. Oates, 1999. "An Essay on Fiscal Federalism," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 37(3), pages 1120-1149, September.
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  1. Sound Public Financial Management Systems are a Key Element to the Successful Fiscal Decentralization Process
    by Blogmaster in Public Financial Management Blog on 2009-05-27 12:00:00
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