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A Practitioner´s Guide to Intergovernmental Fiscal Transfers

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  • Anwar Shah

    (World Bank Institute (Washington DC, United States))

Abstract

Intergovernmental fiscal transfers are a dominant feature of sub-national finance in most countries. They are used to ensure that revenues roughly match the expenditure needs of various orders (levels) of sub-national governments. They are also used to advance national, regional and local area objectives such as fairness and equity and creating a common economic union. The structure of these transfers create incentives for national, regional and local governments that have a bearing on fiscal management, macroeconomic stability, distributional equity, allocative efficiency and public services delivery. This paper reviews conceptual, empirical and the practice literature to distill lessons of policy interest in designing the fiscal transfers to create the right incentives for prudent fiscal managment and competitive and innovative service delivery. The paper provides practical guidance on the design of performance-oriented transfers that emphasize bottom-up, client- focused and results-based government accountability. It cites examples of simple but innovative grant designs that can satisfy grantors’ objectives while preserving local autonomy and creating an enabling environment for responsive, responsible, equitable and accountable public governance. The paper further provides guidance on the design and the practice of equalization transfers for regional fiscal equity as well as the institutional arrangements for implementation of such transfer mechanisms. The paper concludes with negative (practices to avoid) and positive (practices to emulate) lessons from international practices.

Suggested Citation

  • Anwar Shah, 2006. "A Practitioner´s Guide to Intergovernmental Fiscal Transfers," Revista de Economía y Estadística, Universidad Nacional de Córdoba, Facultad de Ciencias Económicas, Instituto de Economía y Finanzas, vol. 44(2), pages 127-186, Diciembre.
  • Handle: RePEc:ief:reveye:v:44:y:2006:i:2:p:127-186
    DOI: 10.55444/2451.7321.2006.v44.n2.4088
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    References listed on IDEAS

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    1. Huther, J. & Roberts, S. & Shah, A., 1997. "Public Expenditure Reform under Adjustment Lending. Lessons from World Bank Experiences," World Bank - Discussion Papers 382, World Bank.
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    Cited by:

    1. Cruz, Tassia & Silva, Talita, 2020. "Minimum Spending in Education and the Flypaper Effect," Economics of Education Review, Elsevier, vol. 77(C).
    2. Lavado, Rouselle F. & Layug, Allan S. & Pantig, Ida Marie T. & Bolong, Leilani E., 2010. "Do Barangays Really Matter in Local Services Delivery? Some Issues and Policy Options," Discussion Papers DP 2010-03, Philippine Institute for Development Studies.
    3. Sharma, Chanchal Kumar, 2010. "Beyond Gaps and Imbalances: Re-Structuring the Debate on Intergovernmental Fiscal Relations," MPRA Paper 32145, University Library of Munich, Germany.
    4. Bodhisattva Sengupta, 2016. "Endogenous Leadership in a Federal Transfer Game," Working Papers id:11473, eSocialSciences.
    5. Schakel, Arjan H., 2008. "Validation of the Regional Authority Index," MPRA Paper 8972, University Library of Munich, Germany.
    6. Freinkman, Lev, 2007. "Intergovernmental relations in Nigeria: improving service delivery in core sectors," MPRA Paper 10032, University Library of Munich, Germany.
    7. Neyapti, Bilin, 2013. "Fiscal decentralization, fiscal rules and fiscal discipline," Economics Letters, Elsevier, vol. 121(3), pages 528-532.
    8. Aragon, Fernando, 2009. "The flypaper effect revisited," LSE Research Online Documents on Economics 58199, London School of Economics and Political Science, LSE Library.
    9. Masaki, Takaaki, 2018. "The impact of intergovernmental transfers on local revenue generation in Sub-Saharan Africa: Evidence from Tanzania," World Development, Elsevier, vol. 106(C), pages 173-186.
    10. Bischoff, Ivo, 2008. "Conditional Grants, Grant-Seeking and Welfare when there is Government Failure on the Subordinate Level," ZEW Discussion Papers 08-031, ZEW - Leibniz Centre for European Economic Research.
    11. Llanto, Gilberto M., 2009. "Fiscal Decentralization and Local Finance Reforms in the Philippines," Discussion Papers DP 2009-10, Philippine Institute for Development Studies.
    12. Tahir Yousaf & Qurat ul Ain & Yasmeen Akhtar & Wasi Ul Hassan Shah, 2022. "The Crowding in (out) Effect of Intergovernmental Transfers on Local Government Revenue Generation: Evidence from Pakistan," Hacienda Pública Española / Review of Public Economics, IEF, vol. 242(3), pages 3-28, September.
    13. Linda Veiga & Francisco Veiga, 2013. "Intergovernmental fiscal transfers as pork barrel," Public Choice, Springer, vol. 155(3), pages 335-353, June.
    14. Kumar, Surender & Managi, Shunsuke, 2009. "Compensation for environmental services and intergovernmental fiscal transfers: The case of India," Ecological Economics, Elsevier, vol. 68(12), pages 3052-3059, October.
    15. World Bank, 2013. "Impact and Implications of Recent and Potential Changes to Brazil's Subnational Fiscal Framework," World Bank Publications - Reports 20773, The World Bank Group.

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