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The assignment of functions and intergovernmental fiscal relations in the Philippines 20 years after decentralization

Author

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  • Gilberto M. Llanto

    (Philippine Institute for Development Studies)

Abstract

The 1991 Local Government Code devolved substantial spending, taxing, and borrowing powers to local government units (LGUs). Moving governance closer to the people can generate a welfare gain, but local governments must have adequate revenues to finance local development. The paper examines the current status of the tax-expenditure assignment and the intergovernmental fiscal relations, and identifies areas for reform. There is a need for a clearer and more accountable assignment of expenditure by eliminating particular sections of the code, which serve as a route for national government agencies to be engaged in devolved activities, and for politicians to insert funding for pet projects, which distort local decision making and preferences. There is need as well to review the tax assignment to improve local revenue generation. The allocation of intergovernmental fiscal transfers may be improved by introducing matching grants to improve equalization transfers to local governments, and performance-based grants to motivate greater local revenue mobilization. Without a clear funding source, unfunded mandates imposed on local governments defeat the purpose of the policy objectives set in those mandates. Local government alliances and cooperative undertaking may provide public goods with interjurisdictional spillover benefits. Consolidation, better coordination of local government activities, and resource pooling for better local service delivery are pathways indicated by successful experiences of LGU collaboration.

Suggested Citation

  • Gilberto M. Llanto, 2012. "The assignment of functions and intergovernmental fiscal relations in the Philippines 20 years after decentralization," Philippine Review of Economics, University of the Philippines School of Economics and Philippine Economic Society, vol. 49(1), pages 37-80, June.
  • Handle: RePEc:phs:prejrn:v:49:y:2012:i:1:p:37-80
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    File URL: http://pre.econ.upd.edu.ph/index.php/pre/article/view/671/777
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    References listed on IDEAS

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    1. Timothy Besley & Stephen Coate, 1999. "Centralized versus Decentralized Provision of Local Public Goods: A Political Economy Analysis," NBER Working Papers 7084, National Bureau of Economic Research, Inc.
    2. Joseph J. Capuno, 2005. "The quality of local governance and development under decentralization in the Philippines," UP School of Economics Discussion Papers 200506, University of the Philippines School of Economics.
    3. Fjeldstad, O.H., 2001. "Intergorvernmental Fuscal Relations in Developing Countries. A Review of Issues," Papers 2001:11, Universitat Zurich - Wirtschaftswissenschaftliches Institut.
    4. Manasan, Rosario G. & Mercado, Ruben G., 1999. "Regional Economic Growth and Convergence in the Philippines: 1975-1997," Discussion Papers DP 1999-13, Philippine Institute for Development Studies.
    5. 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.
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    Citations

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    Cited by:

    1. Ortiz, Danica Aisa P. & Abrigo, Michael R.M. & Tam, Zhandra C., 2017. "Decentralization and Health in the Philippines: A Systematic Review of Empirical Evidences," Discussion Papers DP 2017-58, Philippine Institute for Development Studies.
    2. Cesi Cruz & Philip Keefer & Julien Labonne, 2016. "Incumbent Advantage, Voter Information and Vote Buying," IDB Publications (Working Papers) 7730, Inter-American Development Bank.
    3. Joseph J. Capuno & Stella A. Quimbo & Aleli D. Kraft & Carlos Antonio R. Tan, Jr. & Vigile Marie B. Fabella, 2012. "Perks and public provisions : Effects of yardstick competition on local government fiscal behavior in the Philippines," UP School of Economics Discussion Papers 201208, University of the Philippines School of Economics.
    4. Cesi Cruz & Philip Keefer & Julien Labonne, 2016. "Incumbent Advantage, Voter Information and Vote Buying," IDB Publications (Working Papers) 94877, Inter-American Development Bank.
    5. Joseph J. Capuno, 2017. "Violent conflicts in ARMM: Probing the factors related to local political, identity, and shadow-economy hostilities," UP School of Economics Discussion Papers 201707, University of the Philippines School of Economics.

    More about this item

    Keywords

    fiscal decentralization; tax-expenditure assignment; intergovernmental fiscal relations; performance-based grants; decentralization theorem;

    JEL classification:

    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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