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Macroeconomic Management and the Devolution of Fiscal Powers

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  • PAULO DRUMMOND
  • ALI MANSOOR

Abstract

Several of the transition economies are devolving fiscal authority to subnational governments at a time when it is also important to consolidate fiscal policy. This can be problematic because, without appropriate care, the central government's ability to determine the level and structure of revenues, public spending, and borrowing may well diminish as fiscal policy is devolved. This paper focuses on how the center can maintain its ability to conduct fiscal policy while devolving revenue, spending, and borrowing powers to lower levels of government. Empirical evidence shows that countries with good governance have maintained fiscal control despite a high degree of fiscal devolution. And decentralization is associated with better fiscal outcomes for middle-income countries with strong governance. Fiscal management issues are explored in four key areas: budget coordination mechanisms at the macro level, tax-effort incentives and revenue-sharing mechanisms, expenditure control and hard-budget constraints, and criteria and rules for borrowing.

Suggested Citation

  • Paulo Drummond & Ali Mansoor, 2003. "Macroeconomic Management and the Devolution of Fiscal Powers," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 39(1), pages 63-85, January.
  • Handle: RePEc:mes:emfitr:v:39:y:2003:i:1:p:63-85
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    1. Paulo Drummond & Ali Mansoor, 2003. "Macroeconomic Management and the Devolution of Fiscal Powers," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 39(1), pages 63-85, January.
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    Cited by:

    1. Roberto Fernández Llera & Carlos Monasterio Escudero, 2010. "¿Entre dos o entre todos? Examen y propuestas para la coordinación presupuestaria en España," Hacienda Pública Española, IEF, vol. 195(4), pages 139-163, december.
    2. Paulo Drummond & Ali Mansoor, 2003. "Macroeconomic Management and the Devolution of Fiscal Powers," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 39(1), pages 63-85, January.
    3. James Gallagher & Daniel Hinze, "undated". "Financing Options for Devolved Government in the UK," Working Papers 2005_24, Business School - Economics, University of Glasgow.
    4. Paulo Drummond & Ali Mansoor, 2003. "Macroeconomic Management and the Devolution of Fiscal Powers," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 39(1), pages 63-85, January.

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