IDEAS home Printed from https://ideas.repec.org/p/imf/imfwpa/01-65.html
   My bibliography  Save this paper

Intergovernmental Relations and Fiscal Discipline; Between Commons and Soft Budget Constraints

Author

Listed:
  • Guiseppe Pisauro

Abstract

Fiscal decentralization is likely to entail a bias in the budget process toward higher public expenses and deficits. The paper reviews lessons drawn from the theoretical literature and international experience on the design of intergovernmental relations. The institutional setup should address the dual problem of "common tax resources" and "soft" budget constraints, where policies devised to correct one problem may exacerbate the other. An approach based on full tax autonomy of lower-tier governments and reliance on market discipline, not supplemented by self-imposed constitutional limits, is not advisable. More effective seems to be a cooperative approach with some preeminence granted to the central government.

Suggested Citation

  • Guiseppe Pisauro, 2001. "Intergovernmental Relations and Fiscal Discipline; Between Commons and Soft Budget Constraints," IMF Working Papers 01/65, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:01/65
    as

    Download full text from publisher

    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=4081
    Download Restriction: no

    References listed on IDEAS

    as
    1. Gian Maria Milesi-Ferretti, 1997. "Fiscal Rules and the Budget Process," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 56(1-2), pages 5-40, June.
    2. Mark Hallerberg & Jürgen von Hagen, 1999. "Electoral Institutions, Cabinet Negotiations, and Budget Deficits in the European Union," NBER Chapters,in: Fiscal Institutions and Fiscal Performance, pages 209-232 National Bureau of Economic Research, Inc.
    3. Alberto Alesina & Tamim Bayoumi, 1996. "The Costs and Benefits of Fiscal Rules: Evidence from U.S. States," NBER Working Papers 5614, National Bureau of Economic Research, Inc.
    4. Andres Velasco, 1999. "A Model of Endogenous Fiscal Deficits and Delayed Fiscal Reforms," NBER Chapters,in: Fiscal Institutions and Fiscal Performance, pages 37-58 National Bureau of Economic Research, Inc.
    5. Wildasin, David E., 1998. "Fiscal aspect of evolving federations : issues for policy and research," Policy Research Working Paper Series 1884, The World Bank.
    6. Tanzi, Vito, 2000. "The role of the State and the quality of the public sector," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), August.
    7. Poterba, James M, 1994. "State Responses to Fiscal Crises: The Effects of Budgetary Institutions and Politics," Journal of Political Economy, University of Chicago Press, vol. 102(4), pages 799-821, August.
    8. Bohn, Henning & Inman, Robert P., 1996. "Balanced-budget rules and public deficits: evidence from the U.S. states," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 45(1), pages 13-76, December.
    9. Alessandra Casella, 1999. "Tradable deficit permits:efficient implementation of the Stability Pact in the European Monetary Union," Economic Policy, CEPR;CES;MSH, vol. 14(29), pages 321-362, October.
    10. János Kornai, 2014. "The soft budget constraint," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 64(supplemen), pages 25-79, November.
    11. von Hagen, Jurgen & Eichengreen, Barry, 1996. "Federalism, Fiscal Restraints, and European Monetary Union," American Economic Review, American Economic Association, vol. 86(2), pages 134-138, May.
    12. Henning Bohn & Robert P. Inman, "undated". "Balanced Budget Rules and Public Deficits: Evidence from the U.S. States (Reprint 060)," Rodney L. White Center for Financial Research Working Papers 10-96, Wharton School Rodney L. White Center for Financial Research.
    13. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(2), pages 269-304, June.
    14. Vito Tanzi, 2000. "The Role of the State and the Quality of the Public Sector," IMF Working Papers 00/36, International Monetary Fund.
    15. Tanzi, Vito, 2000. "The role of the State and the quality of the public sector," Sede de la CEPAL en Santiago (Estudios e Investigaciones) 34714, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    16. Wildasin, David E., 1997. "Externalities and bailouts : hard and soft budget constraints in intergovernmental fiscal relations," Policy Research Working Paper Series 1843, The World Bank.
    17. Fredrik Carlsen, 1998. "Central Regulation of Local Authorities," Public Finance Review, , vol. 26(4), pages 304-326, July.
    18. Poterba, James M, 1996. "Budget Institutions and Fiscal Policy in the U.S. States," American Economic Review, American Economic Association, vol. 86(2), pages 395-400, May.
    19. Poterba, James M., 1995. "Balanced Budget Rules and Fiscal Policy: Evidence From the States," National Tax Journal, National Tax Association, vol. 48(3), pages 329-336, September.
    20. Michael Keen, 1998. "Vertical Tax Externalities in the Theory of Fiscal Federalism," IMF Staff Papers, Palgrave Macmillan, vol. 45(3), pages 454-485, September.
    21. Thomas Courchene, 1999. "Subnational Budgetary and Stabilization Policies in Canada and Australia," NBER Chapters,in: Fiscal Institutions and Fiscal Performance, pages 301-348 National Bureau of Economic Research, Inc.
    22. Jan J.G. Lemmen, 1999. "Managing Government Default Risk in Federal States," FMG Special Papers sp116, Financial Markets Group.
    23. Eckhard Wurzel, 1999. "Towards More Efficient Government: Reforming Federal Fiscal Relations in Germany," OECD Economics Department Working Papers 209, OECD Publishing.
    24. Sewell, David O, 1996. ""The Dangers of Decentralization" According to Prud'homme: Some Further Aspects," World Bank Research Observer, World Bank Group, vol. 11(1), pages 143-150, February.
    25. Gramlich, Edward M, 1976. "The New York City Fiscal Crisis: What Happened and What Is to Be Done?," American Economic Review, American Economic Association, vol. 66(2), pages 415-429, May.
    26. Inman, Robert P, 1995. "How to Have a Fiscal Crisis: Lessons from Philadelphia," American Economic Review, American Economic Association, vol. 85(2), pages 378-383, May.
    27. Velasco, Andres, 2000. "Debts and deficits with fragmented fiscal policymaking," Journal of Public Economics, Elsevier, vol. 76(1), pages 105-125, April.
    28. Caplan, Arthur J. & Cornes, Richard C. & Silva, Emilson C. D., 2000. "Pure public goods and income redistribution in a federation with decentralized leadership and imperfect labor mobility," Journal of Public Economics, Elsevier, vol. 77(2), pages 265-284, August.
    29. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
    30. Poterba, James M., 1995. "Balanced Budget Rules and Fiscal Policy: Evidence From the States," National Tax Journal, National Tax Association, vol. 48(3), pages 329-36, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. James Foreman-Peck & Laurian Lungu, 2009. "Fiscal devolution and dependency," Applied Economics, Taylor & Francis Journals, vol. 41(7), pages 815-828.
    2. Sharma, Chanchal Kumar, 2010. "Beyond Gaps and Imbalances: Re-Structuring the Debate on Intergovernmental Fiscal Relations," MPRA Paper 32145, University Library of Munich, Germany.
    3. Bird, Richard M. & Smart, Michael, 2002. "Intergovernmental Fiscal Transfers: International Lessons for Developing Countries," World Development, Elsevier, vol. 30(6), pages 899-912, June.
    4. Giuriato, Luisa & Gastaldi, Francesca, 2009. "The domestic stability pact in Italy: a rule for discipline?," MPRA Paper 15183, University Library of Munich, Germany.
    5. Maria EL KHDARI, 2015. "Déterminants des transferts intergouvernementaux : le cas des communes Marocaines," Working Papers 201531, CERDI.
    6. Flodén, Martin, 2013. "A role model for the conduct of fiscal policy? Experiences from Sweden," Journal of International Money and Finance, Elsevier, vol. 34(C), pages 177-197.
    7. Giannola, Adriano & Petraglia, Carmelo & Scalera, Domenico, 2016. "Net fiscal flows and interregional redistribution in Italy: A long-run perspective (1951–2010)," Structural Change and Economic Dynamics, Elsevier, vol. 39(C), pages 1-16.
    8. Maria El Khdari, 2016. "Déterminants des transferts intergouvernementaux : le cas des communes Marocaines," Working Papers halshs-01232558, HAL.
    9. Eyraud, Luc & Lusinyan, Lusine, 2013. "Vertical fiscal imbalances and fiscal performance in advanced economies," Journal of Monetary Economics, Elsevier, vol. 60(5), pages 571-587.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:imf:imfwpa:01/65. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jim Beardow) or (Hassan Zaidi). General contact details of provider: http://edirc.repec.org/data/imfffus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.