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Reigning in Provincial Fiscal 'Owners': Decentralization in Lao P.D.R

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Abstract

Lao People’s Democratic Republic is a small single-party State with an already long but erratic history of decentralization. Political drives towards decentralization and re-centralization have alternated for more than thirty years. Today, provincial governments enjoy a great deal of autonomy and collect around the sixty percent of all government revenues from a wide array of sources including the import tariff. Most central finance functions (tax administration, customs, and treasury) are de facto controlled by the provinces. In this paper we argue that the Lao PDR system of inter-governmental fiscal relations is not really decentralized, and can better be described as a sui-generis form of de-concentration. Although provincial governors are appointed at the central level, they have a high degree of fiscal autonomy. In addition, the provincial governors appoint the heads of district offices. The system is thus absent of proper accountability mechanisms between the citizenry and its political representatives. In addition, the excessive de facto power at the provincial level implies the sub-national authorities are not accountable either to the central government. Somewhat paradoxically, the major constraint towards fiscal decentralization in Lao PDR is the absence of a strong central government with the capacity to efficiently collect revenues and be able to control and monitor expenditures at the sub-national level. Significant re-centralization will need to take place before decentralization reform can go forward.

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  • Juan Luís Gómez & Jorge Martinez-Vazquez & Cristian Sepúlveda, 2008. "Reigning in Provincial Fiscal 'Owners': Decentralization in Lao P.D.R," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0830, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    • Handle: RePEc:ays:ispwps:paper0830
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    1. Roy Bahl & Sally Wallace, 2007. "Intergovernmental Transfers: The Vertical Sharing Dimension," Springer Books, in: Jorge Martinez-Vazquez & Bob Searle (ed.), Fiscal Equalization, chapter 0, pages 205-249, Springer.
    2. World Bank, 2007. "Lao PDR : Public Expenditure Review Integrated Fiduciary Assessment," World Bank Publications - Reports 7725, The World Bank Group.
    3. Jorge Martinez-Vazquez & Bob Searle, 2007. "Challenges in the Design of Fiscal Equalization and Intergovernmental Transfers," Springer Books, in: Jorge Martinez-Vazquez & Bob Searle (ed.), Fiscal Equalization, chapter 0, pages 3-10, Springer.
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    5. Roy Bahl & Jorge Martinez-Vazquez, 2013. "Sequencing Fiscal Decentralization," Annals of Economics and Finance, Society for AEF, vol. 14(2), pages 641-687, November.
    6. Jorge Martinez-Vazquez & Juan Luis Gomez & Guevera Yao, 2006. "Fiscal Decentralization in the People’s Democratic Republic of Lao," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0622, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
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