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On National or Supranational Objectives; Improving the Effectiveness of Targeted Expenditure Programs

  • Ping Zhang
  • E. Tandberg
  • Ehtisham Ahmad
Registered author(s):

    Central governments or the international community at large are concerned about subnational service delivery. The design of targeted expenditure programs features frequently in central efforts to redistribute infrastructure and social spending or assure minimum standards. These programs are typically financed by the center, often with external assistance, but are implemented at the subnational level, which may not have incentives to spend the resources as intended by the center or donors. We discuss mechanisms for improving the effectiveness of targeted public expenditure programs, modeling the interaction between different levels of government as a dynamic game. An incentive structure could be designed that compelled local governments to truthfully reveal their ability to implement national programs in a cost-effective manner and to exert the effort required to maximize the expected benefits. The models have direct policy relevance in the Heavily Indebted Poor Countries (HIPCs), where donor-financed resources are used for poverty-reduction at the local level, or in large countries such as China, where there is an effort to redirect social and infrastructure spending to particular regions.

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    Paper provided by International Monetary Fund in its series IMF Working Papers with number 02/209.

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    Length: 30
    Date of creation: 01 Dec 2002
    Date of revision:
    Handle: RePEc:imf:imfwpa:02/209
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    1. Kofman, Fred & Lawarree, Jacques, 1993. "Collusion in Hierarchical Agency," Econometrica, Econometric Society, vol. 61(3), pages 629-56, May.
    2. Antonio Estache & Frannie Humplick, 1995. "Does decentralization improve infrastructure performance?," ULB Institutional Repository 2013/44079, ULB -- Universite Libre de Bruxelles.
    3. Jack Diamond, 2002. "The Role of Internal Audit in Government Financial Management; An International Perspective," IMF Working Papers 02/94, International Monetary Fund.
    4. Lockwood, Ben, 1998. "Distributive Politics and the Costs of Centralization," CEPR Discussion Papers 2046, C.E.P.R. Discussion Papers.
    5. de Groot, Hans, 1988. "Decentralization decisions in bureaucracies as a principal-agent problem," Journal of Public Economics, Elsevier, vol. 36(3), pages 323-337, August.
    6. Bird, Richard, 1994. "Decentralizing infrastructure : for good or ill?," Policy Research Working Paper Series 1258, The World Bank.
    7. Cremer, Jaques & Estache, Antonio & Seabright, Paul & DEC, 1994. "The decentralization of public services : lessons from the theory of the firm," Policy Research Working Paper Series 1345, The World Bank.
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