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Sequencing fiscal decentralization

  • Bahl, Roy
  • Martinez-Vazquez, Jorge

While there is extensive knowledge about how to design fiscal decentralization policies, considerably less is understood about how a decentralization program should be sequenced and implemented. Countries embarking on decentralization often struggle with decisions about the essential components of decentralization, including the order of an introduction of decentralization policies, the number of years necessary to bring a full program on line, and the components of the transition strategy. The authors argue that the sequencing of decentralization policies is an important determinant of its success. The consequences of a poorly sequenced decentralization program can range from minor delays and complications to ineffectiveness and subsequent failing support of decentralization efforts, macroeconomic instability, and fundamental failure in public sector delivery. At a minimum, the strategy of"making it up as we go"will not lead to the same structure of decentralization as will a planned strategy. The paper raises two questions: First, is there an optimal sequencing for decentralization policies and implementation? The answer is that there is, and that following these sequencing rules can reduce the costs and risks of implementing fiscal decentralization. Second, to what extent do countries follow these optimal sequencing rules? The answer is, in general, they do not. The gap between theory and practice is a result of the complexity of sequencing design, which discourages fiscal planners from implementing the full process. In addition, sequencing requires a sustained discipline and vision for its implementation, as well as overcoming pressures from political actors, especially in developing countries.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3914.

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Date of creation: 01 May 2006
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Handle: RePEc:wbk:wbrwps:3914
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  1. Robert A. Simanjuntak & B. Raksaka Mahi, 2004. "Local tax Revenue Mobilization in Indonesia's Decentralizing Era," Chapters, in: Reforming Intergovernmental Fiscal Relations and the Rebuilding of Indonesia, chapter 6 Edward Elgar.
  2. Hamid Davoodi & Heng-fu Zou, 1996. "Fiscal Decentralization and Economic Growth: A Cross-Country Study," CEMA Working Papers 98, China Economics and Management Academy, Central University of Finance and Economics.
  3. Singh, Nirvikar & Rao, Govinda, 2006. "Political Economy of Federalism in India," OUP Catalogue, Oxford University Press, number 9780195686937, March.
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  5. Jorge Martinez-Vazquez, 2007. "Asymmetric Federalism in Russia: Cure or Poison?," Chapters, in: Fiscal Fragmentation in Decentralized Countries, chapter 8 Edward Elgar.
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  10. Charles E. McLure, Jr. & Jorge Martinez-Vazquez, 1998. "Intergovernmental Fiscal Relations in Vietnam," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper9802, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  11. World Bank, 2004. "State Fiscal Reforms in India : Progress and Prospects," World Bank Other Operational Studies 14609, The World Bank.
  12. Jorge Martinez-Vazquez & Andrey Timofeev, 2005. "Choosing between Centralized and Decentralized Models of Tax Administration," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0502, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  13. Arze, Francisco Javier & Martinez Vázquez, Jorge, 2003. "Descentralización en Latinoamérica desde una perspectiva de países pequeños: Bolivia, El Salvador, Ecuador y Nicaragua," Observatorio de la Economía Latinoamericana, Grupo Eumed.net (Universidad de Málaga), issue 11, August.
  14. Martinez-Vazquez, Jorge & McNab, Robert M., 2003. "Fiscal Decentralization and Economic Growth," World Development, Elsevier, vol. 31(9), pages 1597-1616, September.
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  16. Zhang, Tao & Zou, Heng-fu, 1998. "Fiscal decentralization, public spending, and economic growth in China," Journal of Public Economics, Elsevier, vol. 67(2), pages 221-240, February.
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  18. Nirvikar Singh, 2004. "India’s System of Intergovernmental Fiscal Relations∗," Public Economics 0412006, EconWPA.
  19. Qiao, Baoyun & Martinez-Vazquez, Jorge & Xu, Yongsheng, 2008. "The tradeoff between growth and equity in decentralization policy: China's experience," Journal of Development Economics, Elsevier, vol. 86(1), pages 112-128, April.
  20. Anwar Shah, 2008. "Fiscal federalism and macroeconomic governance : for better or for worse?," CEMA Working Papers 584, China Economics and Management Academy, Central University of Finance and Economics.
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  24. Jorge Martinez-Vasquez & Jameson Boex, 2001. "Russia's Transition to a New Federalism," World Bank Publications, The World Bank, number 15248, September.
  25. Jameson Boex & Jorge Martinez-Vazquez, 2004. "Developing the institutional framework for intergovernmental fiscal relations in decentralizing LDCs," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0402, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  26. Baoyun Qiao & Jorge Martinez-Vazquez & Yongsheng Xu, 2002. "Growth and Equity Tradeoff in Decentralization Policy: China's Experience," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0216, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
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