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Capital Infrastructure and Equity Objectives in Decentralized Systems

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Abstract

All in all, in this paper we argue that disparities in the availability of and need for capital infrastructure matters for fiscal equity. However, we believe that a proper discussion of this topic should be framed in terms of the incidence of outputs and outcomes of public services produced with this infrastructure. Infrastructure alone cannot be assigned any policy priority independent of programs and services that utilize these capital assets. Once we place this discussion in the framework of access to and quality of public services, we then move to the question of the best form of policy intervention, which can be specific to capital inputs. Thus, we consider both pros and cons of addressing infrastructure disparities in an earmarked fashion—in the line of conditional capital grants still used in many countries— as opposed to incorporating capital infrastructure disparities into a general-purpose equalization grant—which is not explicitly done in many countries. The rest of this paper is organized as following. In the next section we make a normative case for addressing infrastructure needs in intergovernmental arrangements. Then, we examine how and to what extent those capital disparities are addressed in practice using three country cases (Peru, Russia, and Spain). Next, we discuss some policy implications. We conclude with a summary of the issues and final comments.

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  • Jorge Martinez-Vazquez & Andrey Timofeev, 2014. "Capital Infrastructure and Equity Objectives in Decentralized Systems," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1410, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  • Handle: RePEc:ays:ispwps:paper1410
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    1. Wang, Wen & Duncombe, William D. & Yinger, John M., 2011. "School District Responses to Matching Aid Programs for Capital Facilities: A Case Study of New York’s Building Aid Program," National Tax Journal, National Tax Association;National Tax Journal, vol. 64(3), pages 759-794, September.
    2. Nicoletta Feruglio & Jorge Martinez-Vazquez & Andrey Timofeev, 2008. "An Assessment of Fiscal Decentralization in Macedonia," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0814, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    3. Jaya Josie & Garry MacDonald & Jeffrey Petchey, 2008. "A Dynamic Equalisation Model for Economic and Social Capital Grants with a South African Example," Journal of Development Studies, Taylor & Francis Journals, vol. 44(8), pages 1169-1189.
    4. Keen, Michael & Marchand, Maurice, 1997. "Fiscal competition and the pattern of public spending," Journal of Public Economics, Elsevier, vol. 66(1), pages 33-53, October.
    5. Feldstein, Martin S, 1975. "Wealth Neutrality and Local Choice in Public Education," American Economic Review, American Economic Association, vol. 65(1), pages 75-89, March.
    6. Robin Boadway, 2004. "The Theory and Practice of Equalization," CESifo Economic Studies, CESifo, vol. 50(1), pages 211-254.
    7. Albouy, David, 2012. "Evaluating the efficiency and equity of federal fiscal equalization," Journal of Public Economics, Elsevier, vol. 96(9-10), pages 824-839.
    8. Mila Freire & John Petersen & Marcela Huertas & Miguel Valadez, 2004. "Subnational Capital Markets in Developing Countries : From Theory to Practice," World Bank Publications, The World Bank, number 15044, July.
    9. Sophia Levtchenkova & Jeff Petchey, 2004. "A model for Public Infrastructure Equalization in Transitional Economies," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0414, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    10. Capeci, John, 1994. "Local fiscal policies, default risk, and municipal borrowing costs," Journal of Public Economics, Elsevier, vol. 53(1), pages 73-89, January.
    11. Julio López Laborda & Jorge Martinez-Vazquez & Carlos Monasterio Escudero, 2006. "The Practice of Fiscal Federalism in Spain," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0623, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    12. James Alm & Jorge Martinez-Vazquez & Dana Weist & Dana Weist, 2004. "Introduction," Chapters,in: Reforming Intergovernmental Fiscal Relations and the Rebuilding of Indonesia, chapter 1 Edward Elgar Publishing.
    13. Eckhard Wurzel, 1999. "Towards More Efficient Government: Reforming Federal Fiscal Relations in Germany," OECD Economics Department Working Papers 209, OECD Publishing.
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    Cited by:

    1. Jorge Martinez-Vazquez & Violeta Vulovic, 2017. "How well do subnational borrowing regulations work?," Chapters,in: Central and Local Government Relations in Asia, chapter 5, pages 161-220 Edward Elgar Publishing.

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