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Perspectives on the design of intergovernmental fiscal relations


  • Shah, Anwar


The way taxing and spending authorities are delineated and the manner in which intergovernmental transfers are structured in a country have come to be recognized as fundamentally important in the efficient and equitable provision of public services. The objective of this paper is to provide a broad framework in assessing intergovernmental fiscal arrangements in individual countries and also to develop general guidelines in helping developing nations chart their own courses of actions in their reforms. With the major exception of centrally planned economies in transition to market economies, one does not expect that these arrangements will be fully restructured in any developing economy, yet major economic gains may be possible in some countries by simply fine tuning the existing structure of intergovernmental transfers without reassigning expenditure and taxing responsibilities. The paper includes a discussion of the tax and expenditure assignment issues and tax base and revenue sharing mechanisms. The conceptual basis of expenditure assignment is discussed first and any special problems of this nature observed in selected countries are highlighted. The paper is concerned with the theory and practice of intergovernmental transfers and provides a taxonomy of grant programs based on their objectives. It also provides evidence on vertical and horizontal fiscal imbalances and an impressionistic view of fiscal arrangements in selected countries.

Suggested Citation

  • Shah, Anwar, 1991. "Perspectives on the design of intergovernmental fiscal relations," Policy Research Working Paper Series 726, The World Bank.
  • Handle: RePEc:wbk:wbrwps:726

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    References listed on IDEAS

    1. Anwar Shah, 1996. "A Fiscal Need Approach to Equalization," Canadian Public Policy, University of Toronto Press, vol. 22(2), pages 99-115, June.
    2. Brueckner, Jan K., 1982. "A test for allocative efficiency in the local public sector," Journal of Public Economics, Elsevier, vol. 19(3), pages 311-331, December.
    3. Brueckner, Jan K., 1979. "Property values, local public expenditure and economic efficiency," Journal of Public Economics, Elsevier, vol. 11(2), pages 223-245, March.
    4. Vito Tanzi, 1978. "Inflation, Real Tax Revenue, and the Case for Inflationary Finance: Theory with an Application to Argentina (Inflation, recettes fiscales réelles et avantages du financement inflationniste: théorie ," IMF Staff Papers, Palgrave Macmillan, vol. 25(3), pages 417-451, September.
    5. Shah, Anwar, 1992. "Dynamics of Public Infrastructure, Industrial Productivity and Profitability," The Review of Economics and Statistics, MIT Press, vol. 74(1), pages 28-36, February.
    6. McGuire, Martin, 1978. "A method for estimating the effect of a subsidy on the receiver's resource constraint: with an application to U.S. local governments 1964-1971," Journal of Public Economics, Elsevier, vol. 10(1), pages 25-44, August.
    7. Anwar M. Chaudry-Shah, 1989. "A Capitalization Approach to Fiscal Incidence at the Local Level," Land Economics, University of Wisconsin Press, vol. 65(4), pages 359-375.
    8. Chaudry-Shah, Anwar, 1988. " Capitalization and the Theory of Local Public Finance: An Interpretive Essay," Journal of Economic Surveys, Wiley Blackwell, vol. 2(3), pages 209-243.
    9. Shah, Anwar, 1990. "The new fiscal federalism in Brazil," Policy Research Working Paper Series 557, The World Bank.
    10. Bomfim, Antulio N. & Shah, Anwar, 1991. "Macroeconomic management and the division of powers in Brazil : perspectives for the nineties," Policy Research Working Paper Series 567, The World Bank.
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    Cited by:

    1. Chang Woon Nam & Rüdiger Parsche, 2001. "Looking for Appropriate Forms of Intergovernmental Transfers for Municipalities in Transition Economies," CESifo Working Paper Series 614, CESifo Group Munich.
    2. K., Jothi Sivagnanam & M., Naganathan, 1999. "Federal Transfers and the Tax efforts of the States in India," MPRA Paper 3208, University Library of Munich, Germany.
    3. Manasan, Rosario G., 2017. "Designing the Fiscal Features of a Federal Form of Government: Autonomy, Accountability, and Equity Considerations," Discussion Papers DP 2017-56, Philippine Institute for Development Studies.
    4. Osvaldo Larrañaga, 1996. "Descentralización y Equidad: El Caso de los Servicios Sociales en Chile," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 33(100), pages 345-365.
    5. Boadway, Robin & Roberts, Sandra & Shah, Anwar, 1994. "The reform of fiscal systems in developing and emerging market economies : a federalism perspective," Policy Research Working Paper Series 1259, The World Bank.
    6. Jun Ma, 1997. "Intergovernmental fiscal transfer in nine countries : lessons for developingcountries," Policy Research Working Paper Series 1822, The World Bank.
    7. Bird, Richard & Wallich, Christine, 1992. "Financing local government in Hungary," Policy Research Working Paper Series 869, The World Bank.
    8. Chandavarkar, Anand, 1994. "Infrastructure finance : issues, institutions, and policies," Policy Research Working Paper Series 1374, The World Bank.
    9. Ma, Jun, 1995. "Modelling central-local fiscal relations in China," China Economic Review, Elsevier, vol. 6(1), pages 105-136.
    10. Abdul Jalil, Ahmad Zafarullah, 2009. "Decentralization, Subnational Governments' Behaviour and Macroeconomic Instability: The Case of Malaysia," MPRA Paper 19071, University Library of Munich, Germany.
    11. Boadway, Robin & Roberts, Sandra & Shah, Anwar, 1994. "Fiscal federalism : dimensions of tax reform in developing countries," Policy Research Working Paper Series 1385, The World Bank.
    12. World Bank, 2007. "China : Improving Rural Public Finance for the Harmonious Society," World Bank Other Operational Studies 7664, The World Bank.


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