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Fiscal Federalism and Decentralization in Mongolia

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  • Lkhagvadorj, Ariunaa

Abstract

Fiscal federalism has been an important topic among public finance theorists in the last four decades. Developing and transition countries have developed a variety of forms of fiscal decentralization as a possible strategy to achieve effective and efficient governmental structures. A generalized principle of decentralization due to the country specific circumstances does not exist. Therefore, decentralization has taken place in different forms in various countries at different times, and even exactly the same extent of decentralization may have had different impacts under different conditions. As a former socialist country Mongolia has had a highly centralized governmental sector. The result of the analysis below revealed that the Mongolia has introduced a number of decentralization measures, which followed a top down approach and were slowly implemented without any integrated decentralization strategy in the last decade. As a result Mongolia became de-concentrated state with fiscal centralization. The revenue assignment is lacking a very important element, for instance significant revenue autonomy given to sub-national governments, which is vital for the efficient service delivery at the local level. According to the current assignments of the expenditure and revenue responsibilities most of the provinces are unable to provide a certain national standard of public goods supply. Hence, intergovernmental transfers from the central jurisdiction to the sub-national jurisdictions play an important role for the equalization of the vertical and horizontal imbalances in Mongolia. The critical problem associated with intergovernmental transfers is that there is not a stable, predictable and transparent system of transfer allocation. The amount of transfers to sub-national governments is determined largely by political decisions on ad hoc basis and disregards local differences in needs and fiscal capacity. Thus a fiscal equalization system based on the fiscal needs of the provinces should be implemented. The equalization transfers will at least partly offset the regional disparities in revenues and enable the sub-national governments to provide a national minimum standard of local public goods.

Suggested Citation

  • Lkhagvadorj, Ariunaa, 2010. "Fiscal Federalism and Decentralization in Mongolia," MPRA Paper 28758, University Library of Munich, Germany, revised Mar 2010.
  • Handle: RePEc:pra:mprapa:28758
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    References listed on IDEAS

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    Cited by:

    1. Hans-Georg Petersen & Ulrich Thiessen & Pierre Wohlleben, 2010. "Shadow Economy, Tax Evasion, and Transfer Fraud - Definition, Measurement, and Data Problems," International Economic Journal, Taylor & Francis Journals, vol. 24(4), pages 421-441.
    2. Meskerem Brhane & Hernando Garzón & Ariunaa Lkhagvadorj, 2013. "City Finances of Ulaanbaatar, Mongolia," World Bank Other Operational Studies 16795, The World Bank.
    3. World Bank, 2013. "City Finances of Ulaanbaatar, Mongolia," World Bank Other Operational Studies 13255, The World Bank.

    More about this item

    Keywords

    Fiscal Federalism; Decentralization; Revenue Autonomy; Expenditure Assignment; Intergovernmental transfers.;

    JEL classification:

    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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