Fiscal Decentralization and Natural Disaster Mitigation: Evidence from the United States

How decentralized government structure influences public service delivery has been a major focus of debate in the public finance literature. In this paper, we empirically examine the effect of fiscal decentralization on natural disaster damages across the U.S. states. We construct a unique measure of decentralization using state and local government expenditures on natural resources, which include investment in flood control and mitigation measures, among others. Using state‐level panel data from 1982 to 2011, we find that states that are more decentralized in natural resource expenditures have experienced more economic losses from floods and storms. This effect is only pronounced in states that are at higher risks of flooding. Our findings suggest that fiscal decentralization may lead to inefficient protection against natural disasters and provide implications for the assignment of disaster management responsibilities across different levels of government in the U.S. federal system.     

Negotiating universalism in India and Latin America: Fiscal decentralization,subnational politics and social outcomes

ABSTRACT

This is the introductory paper for a special issue which focuses on an exploration of how vertical inter-governmental political and fiscal bargains and horizontal variation in political, social and economic conditions across regions contribute to or undermine the provision of inclusive and sustainable social policies at the subnational level in Latin America and India. The papers incorporate both federal, as well as decentralized unitary states, pointing to common political tensions across unitary and federal settings despite the typically greater institutionalization of regional autonomy in federal countries. Jointly, the papers examine the territorial dimension of universalism and explore, in greater and empirical detail, the causal links between fiscal transfers, social policies and outcomes, highlighting the political dynamics that shape fiscal decentralization reforms and the welfare state. This introductory essay reviews existing scholarship, and highlights the contribution of the special issue to understanding these issues beyond OECD contexts.     

Federal dynamics in times of economic and financial crisis

The global economic and financial crisis is a challenge for all governments, but particularly for federal states because divided and/or shared territorial powers make federations susceptible to coordination problems in fiscal policy making. This article explores the effects of the ongoing crisis on federal relations. Three kinds of problems that may become the cause of federal tensions and conflicts are evoked: opportunism of subgovernments, centralisation and erosion of solidarity among members of the federation. Our analysis of fiscal policies and federal conflicts of 11 federations between 2007 and the present reveals three kinds of coordination problems: shirking in the use of federal government grants, rent‐seeking in equalisation payments, and over‐borrowing and over‐spending. Our results show that shirking remained limited to few cases and occurred only in the first part of the crisis. However, rent‐seeking and over‐borrowing and over‐spending led to a reduction of solidarity among subgovernments and to increased regulation of the fiscal discretion of the members of the federation. Subsequently, tensions in federal relations increased – although only in one case did this challenged the federal order.     

THE NEXT DECADE: THE ECONOMIC, POLITICAL, AND SOCIAL CONTEXT OF EMPLOYMENT AND TRAINING POLICIES

The conservative challenge of the Reagan administration has not produced a full-scale reversal of the liberal policies and social programs developed by earlier administrations and seems unlikely to do so now. Nevertheless, the continuities in American social and political history, the changed economic and fiscal circumstances of the current era, and growing public appreciation of the limits of federal action and of institutional capabilities are likely to effect a reduction in the level of federal spending for social programs in the foreseeable future and force the states to assume larger fiscal and programmatic roles. Implications for future employment and training policies include continued decentralization, a shift in focus away from training new entrants to retraining mid-career workers, and greater emphasis on meeting cost-effectiveness tests as program goals seek to promote economic efficiency rather than social objectives.     

The fiscal effects of statehood: New Mexico and Arizona, 1903–1919

The residents of US territories often vote against statehood for fear government will use its greater sovereignty to impose a heavier tax burden. On the other hand, public choice theory predicts that fiscal decentralization limits government’s size. The financial reports of New Mexico and Arizona were examined before and after statehood in 1912. Graphical and regression analyses of the ratios of receipts and expenditures to property values and US GNP suggest that the relative price of government rose far more in the two new states than in a control state, Nevada, thus supporting the claims of statehood’s opponents.     

Testing Riker's Party-Based Theory of Federalism: The Argentine Case

This study seeks to advance our understanding of the institutionalunderpinnings of federalism by evaluating William H. Riker'sstudy of party causality. Using data from federal funds transfersin Argentina, a federation exhibiting high levels of fiscaldecentralization despite its centralized party system, it isshown that when governorships are held by opposition parties,the overall amount of federal funds transferred to provincesincreases considerably. In addition, changes in the partisancomposition of the national government are also associated withsteep increases in the share of provincial federal funds, whereas,more controversially and challenging prominent recent studiesof decentralization in Latin America, divided government atthe national level leads to centralization of intergovernmentalfunds. These findings support Riker's contention that politicalparties exercise a decisive influence over the distributionof fiscal powers between states and the national government.     

STATE REGULATORY REFORM AND FEDERAL REGULATION

In the current political climate, it seems likely that a "New Regulatory Federalism" will push for deregulation at the federal level, with more regulatory responsibilities for the states. During the 1930s, economic regulatory responsibilities were assumed by the federal government. Protective regulation moved to the federal level in the 1960s. Dissatisfaction with centralized regulation has led to attempts at regulatory reform and decentralization. It is expected that these reforms will lead to greater flexibility, and responsiveness to regional differences.     

Interjurisdictional Competition and Intracity Fiscal Disparity across Chinese Prefectural Cities

Fierce competition among county‐level governments has substantially increased disparities in public service provision and housing markets across urban China. The role of the changing intracity administrative structure deserves scholarly, attention in this process. Building on an interdisciplinary literature of public choice and cadre promotion theory, we propose that interjurisdictional competition enlarges the intracity fiscal disparity under China's transitional administrative and fiscal systems. Results from fixed‐effect panel data modeling confirm that cities with higher level of interjurisdictional competition are associated with higher intracity fiscal disparity. This study demonstrates how transition and decentralization of the centralized fiscal system have long‐term, intended and unintended, impacts on fiscal inequality and urban stratification. With continuous urban sprawl, jurisdictional annexation, and large‐scale urban‐to‐rural migration, our study suggests that policies attempting to equalize public service distribution within cities need to consider the administrative structure at the local and regional levels.     

Decentralization in Kerala: Panchayat government discretion and accountability

Kerala is regarded as one of the most decentralized states in India. Through a ‘big bang’ approach, Kerala implemented a significant fiscal decentralization program and then built the capacity of its local governments. We employ a diagnostic framework to analyze its local government discretion and accountability in political, administrative and fiscal domains. We find that Kerala's local governments have a very high degree of discretionary power accompanied by a high degree of accountability towards citizens. But the areas of administrative accountability and financial management need to be strengthened. Also there may have been excessive focus and investment on social accountability mechanisms at the cost of local government discretion and formal public sector accountability mechanisms. Copyright © 2009 John Wiley & Sons, Ltd.     

Local interests,central leadership,and the passage of TRA86

The U.S. federalist public economy is an ever-evolving system of financing and expenditure responsibilities between local, state, and federal governments. The past decades have seen a significant centralization of responsibility for the financing of state and local public services through grants-in-aid and federal tax subsidies. This article advances a model of local constituent influence in central government fiscal policies which seeks to explain this trend, and then examines how strong executive branch and congressional leadership might begin to control the local pressures for central government financing. TRA86 is offered as one example in which this leaedership proved effective. The general lesson is that good fiscal policy in federalist public economies requires not only capable local governments, but central government political institutions with the strength to meet national needs as well.     

Decentralizing a Centralized State: Local Government Finance in Chile Within the Latin American Context

A major issue in Latin. America is the decentralization of public finances and the autonomy of local government. This article begins with a brief review of the ongoing decentralization debate. We then discuss key features of local government finance and autonomy among unitary and federal governments in Latin America. Against that backdrop, we focus on the Chilean case, which has been a widely celebrated success story in the economic development literature. We argue that despite major gains by municipal governments over the past two decades, financial decision making powers still rest with the national government. This creates financial complacency among local governments. To remedy this, we conclude with six proposals for promoting effective decentralization.     

The Impact of Public Funding on Contemporary Visual Arts

Public policy for supporting the visual arts has historically followed different traditions in France and the United Kingdom. In an environment of fiscal austerity that impacts upon public funding as well as private patronage, and given the tensions between artistic freedom on the one hand, and market constraints on the other, this article examines how these two traditions of financing artists has influenced the direction of the work itself. A brief historical presentation of the two forms of public support and their evolution in recent decades provides a framework for understanding government attitudes and policies on both sides of the Channel. A closer examination of selected artists, chosen here for their representativeness and their international renown, is used to illustrate the changing nature of public support for visual art creation.     

Decentralization and Development in Contemporary Uganda

Abstract

There has long been an emphasis on the importance of decentralization in providing better quality public services in the developing world. In order to assess the effectiveness of decentralization I examine here the case study of Uganda, which has seen major decentralization of power over the last quarter-century. In particular the current government has introduced a five-tiered local government structure, decentralized both fiscal and political power to local governments and introduced regular local government elections. However, initial excitement about Uganda's decentralization programme has tapered off in recent years due to a number of problems outlined here. In particular, I show that decentralization in Uganda has suffered from a lack of independence from central government control, which has led to a lack of effectiveness in the provision of high quality public goods.     

Does Decentralization Improve Perceptions of Accountability? Attitudinal Evidence from Colombia

Decentralization is argued to create incentives for local and regional politicians to be more responsive and accountable to their constituents, but few studies have directly tested this claim. We use survey data from Colombia to examine individual‐level evaluations of the degree to which decentralization prompts citizens to view department government as more accountable. We estimate the effect of administrative, fiscal, and political decentralization, controlling for participation, political knowledge, confidence in government, education, and income on perceptions of accountability. Our results indicate that administrative and fiscal decentralization improve perceptions of accountability, while political decentralization does not.     

Decentralization as a conflict transformation tool: The challenge in Kosovo

Perspectives are divided on whether decentralization can ease ethnic conflict. This article considers whether asymmetric decentralization reforms in Kosovo have reduced tensions between Kosovo Albanians (K‐Albanians) and Serbs (K‐Serbs). We argue that because decentralization has been linked to Kosovo's sovereignty in the years after the NATO bombings, during the final status talks, and after independence, it has not achieved intended outcomes throughout the territory of Kosovo. Instead of assuaging tensions and generating allegiance to the central government, decentralization has re‐inforced ethnic divisions and strengthened K‐Serb ties to Serbia, particularly in northern Kosovo. Concessions to majority Serb municipalities in Kosovo have been seen by K‐Serbs as a bribe to buy acceptance of independence, while K‐Albanians question their leaders' continued policy of asymmetric decentralization. Since independence, there have been some encouraging developments in southern municipalities, where K‐Serbs have participated in municipal elections organized by Pristina. Based on Kosovo's experience, we argue that policy‐makers must consider the impact of decentralization reforms at multiple levels of conflict. Further, although we find that decentralization may engage minorities in political processes if reforms are attempted after the establishment of a central government, we caution that it must be combined with policies to encourage interaction and dialogue between ethnic groups if it is to assuage conflict. Copyright © 2010 John Wiley & Sons, Ltd.     

Fiscal Decentralization and Federalism in Latin America

In contrast to years of centralization when the national governmentdominated the states and municipalities, fiscal decentralizationis now taking place throughout Latin America. This study considersthe reasons for this change. Fiscal decentralization meritsseparate attention because the financial independence of subnationalgovernments ultimately determines their success and power. Competingpolitical and economic explanations are tested on a sample of17 countries between 1985 and 1995. While federalism is a significantpredictor of greater fiscal decentralization, other factorssuch as presidential power, structural adjustment, level ofdevelopment, and country size also determine the level of fiscaldecentralization.     

Fiscal Consolidation and Australia's Public Debt

Australia has experienced one of the fastest growing public debt levels in the world post‐Global Financial Crisis due to a series of large federal budget deficits driven by high government spending. In this paper we examine the balance sheet implications of this escalating public debt, before proposing some macro‐fiscal objectives for determining its sustainable level. These objectives are to (i) restore the federal government's solvency; (ii) eliminate foreign public debt; and (iii) achieve budgetary balance over the business cycle. Empirically, we first examine how much fiscal consolidation is required for debt stabilisation at current levels, before considering what sized budget balances are needed to achieve the target debt to GDP ratios consistent with the proposed objectives. The results show that no target debt to GDP level consistent with the optimal levels will be met on current fiscal settings in the medium term. This implies significantly greater fiscal consolidation is required to minimise future fiscal risk.     

The decentralization of primary health care delivery in Chile

The article argues that during the 1980s the process of decentralization in Chile under the military government of General Pinochet shifted the delivery of primary health care to the municipal level. Despite the return to more democratic forms of government in 1990 the overall structure of local‐level service delivery has remained largely unchanged. The municipalities have retained responsibility for service delivery but resources remain centrally determined. In an attempt to enhance accessibility, choice and the responsiveness of the system to individual and local need, reform has been made to the financial transfer mechanisms and a new model of primary health care delivery has recently been introduced. However, problems of resourcing and implementation limit the effectiveness of some of the changes that have accompanied decentralization. Problems have resulted in primary health care delivery because administrative decentralization has not been accompanied by fiscal decentralization, nor effective political decentralization. Copyright © 2001 John Wiley & Sons, Ltd.     

财政分权与地方政府行政管理支出——基于中国省级面板数据的实证研究

行政管理支出具有双重属性:过多的支出不利于经济增长,使地方政府在竞争中处于劣势而不利于官员的晋升,同时有违中央政府的宏观政策目标;但能直接提高地方政府官员个人的福利水平。所以,地方政府及官员对行政管理支出存在两难选择。本文利用我国30个省(自治区、直辖市)1998—2006年的面板数据对财政分权与行政管理支出的关系进行实证研究和稳健性检验。主要结论是:在中国特色财政分权的制度环境下,地方政府在财政支出自由裁量权扩大时,总体效应是加大了行政管理支出的规模。同时,行政人员规模与行政管理支出存在显著的正相关关系。地区经济发展水平、资源禀赋、社会结构等因素对行政管理支出也有显著性的影响。在公共财政体制改革的背景下,其他公共财政支出项目(社会保障支出除外)对行政管理支出存在显著的"挤出"效应。     

You Can't Fix What You Don't Measure: How ALICE Can Help Rebuild the Middle Class

Seventy percent of Americans identify as middle class, but one in three middle‐income households do not earn enough to support their family at the most basic level, and four in five do not earn enough to afford a sustainable budget. This incongruity explains the increasing frustration of many workers. Yet official government measures do not capture this reality, and as a result, policy makers continue to create economic policies that perpetuate the structural mismatch between wages and costs. This Viewpoint essay addresses these shortcomings. After reviewing alternatives to the federal poverty level, it argues that the most realistic and accurate floor to the middle class is the ALICE (Asset Limited, Income Constrained, Employed) Household Survival Budget. The essay then turns to policies that help realign wages and cost of living and presents initiatives that are being implemented in states across the country. Four policy areas would enable more workers to support their families and fulfill the promise of being middle class in America: meaningful work with stable and sufficient wages, upskilling and digital retooling, fiscal cushion for periods of financial instability, and affordable credit.