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Sequencing Fiscal Decentralization

  • Roy Bahl

    (Andrew Young School of Policy Studies, Georgia State University)

  • Jorge Martinez-Vazquez

    (Andrew Young School of Policy Studies, Georgia State University)

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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Article provided by Society for AEF in its journal Annals of Economics and Finance.

Volume (Year): 14 (2013)
Issue (Month): 2 (November)
Pages: 641-687

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Handle: RePEc:cuf:journl:y:2013:v:14:i:3:bahl:martinez-vazquez
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  2. Charles E. McLure, Jr. & Jorge Martinez-Vazquez, 1998. "Intergovernmental Fiscal Relations in Vietnam," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper9802, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  3. Tao Zhang & Heng-fu Zou, 1997. "Fiscal Decentralization, the Composition of Public Spending, and Regional Growth in India," CEMA Working Papers 521, China Economics and Management Academy, Central University of Finance and Economics.
  4. M. Ryaas Rasyid, 2004. "The Policy of Decentralization in Indonesia," Chapters, in: Reforming Intergovernmental Fiscal Relations and the Rebuilding of Indonesia, chapter 4 Edward Elgar.
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  7. Jorge Martinez-Vazquez, 2002. "Asymmetric Federalism in Russia: Cure or Poison?," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0304, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  8. Robert A. Simanjuntak & B. Raksaka Mahi, 2004. "Local tax Revenue Mobilization in Indonesia's Decentralizing Era," Chapters, in: Reforming Intergovernmental Fiscal Relations and the Rebuilding of Indonesia, chapter 6 Edward Elgar.
  9. World Bank, 2004. "State Fiscal Reforms in India : Progress and Prospects," World Bank Other Operational Studies 14609, The World Bank.
  10. 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 paper0402, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  11. Yingyi Qian & Barry R. Weingast, 1996. "China's transition to markets: market-preserving federalism, chinese style," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 1(2), pages 149-185.
  12. 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 paper0502, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  13. Tugrul Gurgur & Anwar Shah, 2014. "Localization and corruption: panacea or pandora's box?," Annals of Economics and Finance, Society for AEF, vol. 15(1), pages 109-136, May.
  14. Davoodi, Hamid & Zou, Heng-fu, 1998. "Fiscal Decentralization and Economic Growth: A Cross-Country Study," Journal of Urban Economics, Elsevier, vol. 43(2), pages 244-257, March.
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  16. Fisman, Raymond & Gatti, Roberta, 2000. "Decentralization and corruption - evidence across countries," Policy Research Working Paper Series 2290, The World Bank.
  17. 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, vol. 86(1), pages 112-128, April.
  18. Zhang, Tao & Zou, Heng-fu, 1998. "Fiscal decentralization, public spending, and economic growth in China," Journal of Public Economics, Elsevier, vol. 67(2), pages 221-240, February.
  19. Jorge Martinez-Vasquez & Jameson Boex, 2001. "Russia's Transition to a New Federalism," World Bank Publications, The World Bank, number 15248.
  20. Shah, Anwar, 1998. "Fiscal federalism and macroeconomic governance : for better or for worse?," Policy Research Working Paper Series 2005, The World Bank.
  21. Arze, Francisco Javier & Martinez Vázquez, Jorge, 2003. "Descentralización en Latinoamérica desde una perspectiva de países pequeños: Bolivia, El Salvador, Ecuador y Nicaragua," Observatorio de la Economía Latinoamericana, Grupo Eumed.net (Universidad de Málaga), issue 11, August.
  22. Wallace E. Oates, 1999. "An Essay on Fiscal Federalism," Journal of Economic Literature, American Economic Association, vol. 37(3), pages 1120-1149, September.
  23. Gramlich, Edward M., 1993. "A Policymaker's Guide to Fiscal Decentralization," National Tax Journal, National Tax Association, vol. 46(2), pages 229-35, June.
  24. Singh, Nirvikar & Rao, Govinda, 2006. "Political Economy of Federalism in India," OUP Catalogue, Oxford University Press, number 9780195686937.
  25. 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 paper0216, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  26. James Alm & Robert Aten & Roy Bahl, 2001. "Can Indonesia Decentralise Successfully? Plans, Problems And Prospects," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 37(1), pages 83-102.
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