Contractual Fiscal Equivalence Versus Geographical Fiscal Equivalence

This work extends the contractual procedure, normally used in therelationships among persons, to intergovernmental relationshipsnamely those among local jurisdictions. This changing inperspective challenges the efficiency criterion based ongeographical fiscal equivalence; in fact the level of equilibriumdoes not depend on the level of the public good provided perse; it rather depends on the fiscal system, on the position ofthe median voter, on whether interjurisdictional mobility iseither favoured or forbidden, and finally on whether the centralgovernment uses transfers either for redistributive purposes oras payments of the services provided by local jurisdictions. Inparticular, the paper shows that if two jurisdictions of the samelevel are allowed to have contractual relationships (horizontalrelationships) the more efficient of the two can sell the servicealso to the less efficient, so reducing citizens' unit costs.     

Intergovernmental Fiscal Relations: Coordination Failures and Fiscal Outcomes

This article estimates the fiscal impact of coordination failures in intergovernmental fiscal relations. The coordination failures considered here are due to agency problems arising from the delegation of fiscal powers to sub-national governments, and "common pool" problems associated with funding decentralised government spending through intergovernmental transfers. Particular attention is focused on the trade-off between coordination and fiscal decentralisation. Evidence provided for a sample of thirty countries suggests that coordination failures are likely to result in a deficit bias in decentralized policy making, particularly in the case of developing countries, for which the benefits of decentralization may be over-stressed. Developed countries were found to be less adversely affected by coordination failures and have therefore managed to pursue fiscal consolidation in a decentralized setup.     

Fiscal Structure and the Post-Proposition 13 Fiscal Regime in California's Cities

Two and a half decades after the passage of Proposition 13 in 1978, California state and local governments continue to feel the intended and unintended effects of tax and expenditure limitations. While considerable time has passed since voters enacted Proposition 13, the effects of the property tax revolt continue to be dramatic. This article examines the fiscal structure of California's city governments from 1972 to 2002. The analysis reveals that California's cities have become less reliant upon property tax revenues and more reliant upon charges and fees, and have not increased reliance upon sales tax revenues as much as expected.     

Fiscal Capacity, Fiscal Need, and Fiscal Comfort among U.S. States: New Evidence

During its lifetime, the U.S. Advisory Commission on IntergovernmentalRelations periodically published estimates of each state's relativefiscal capacity. This research note provides new estimates updatedto fiscal year 1994, the latest year for which all requisiteunderlying data are available. We find that dispersion in capacitynarrowed from 1987 to 1994, largely because the capacities ofCalifornia and the Northeast states, historically enjoying amplecapacity, fell relative to the national average. We also findthat these states generally experienced an increase in relativefiscal need, further narrowing interstate dispersion in fiscalcomfort (capacity relative to need). We conclude with evidencesuggesting that states with low fiscal comfort generally preferrelatively low levels of state and local public services.     

Conservative Mobilization and Fiscal Policies

The two conservative parties in Norway, the old Conservative Party and the younger Progressive Party increased their electoral support from 23 percent in 1975 to 34 percent in the election of 1987. The electoral mobilization by these conservative parties was mainly based on an ideologically inspired rhetoric of reduced government spending and corresponding tax reductions. With the benefit of hindsight, it may be argued that these were policies to which the two parties did not live up. Whatever their political strength in the local arena, they were unable to reduce local government income taxes. But when analysing other fiscal strategies available to local governments we do find differences related to political strength, even if the findings are not always as expected. Municipalities dominated by the conservatives are run on the principle of families paying the actual costs of having children in public day-care institutions. But so are socialist-dominated municipalities. Conservative and socialist municipalities tend to subsidize fees for home-help services for the elderly. The main fiscal source of the conservatives is fees and charges on technical services used by every household and paid according to costs. The watershed between socialist and conservative parties appears as we analyse the use of property tax - a tax used much more frequently by socialist than by conservative and centrist parties.     

Comparative Fiscal Analysis for Counties

This article describes the implementation and use of a decision support system designed to conduct cross-sectional analyses of local government finances. A hypothetical situation using actual data from Illinois counties is constructed to illustrate the uses of the system. It is argued that the incorporation of this type of information, in conjunction with other local data, may lend additional capacity in resource allocation and policy formation at both the state and local levels of government.     

Fiscal Decentralization as Development Policy

Fiscal Decentralization is a popular economic development strategy among transition and developing countries. This article reviews the advantages of fiscal decentralization in a theoretical context, but critiques the relevance of the standard theory of federalism as it applies to emerging economies. It is argued that the macroeconomic benefits of fiscal centralization, the absence of good instruments of local government finance, and the centralist politics that characterize most low income countries have been strong enough to hold back increased emphasis on local government finance.     

Fiscal decentralization and government size

Numerous studies have attempted to model the possible factors contributing to universal growth in public sectors. This paper analyzes one device that appears capable of controlling some of that growth: fiscal decentralization. The results reported here also support the use of monopoly government assumptions in models of public policy     

Political Fragmentation and Fiscal Outcomes

In this paper we develop the analysis ofthe effects on political fragmentation onfiscal policy in a number of ways. Weanalyze three kinds of fragmentation: sizeand control, institutional and over timefragmentation. In doing so we introduce anumber of new variables that allow us tolook at this issue in a broader way. At thesame time we have tackled somemethodological problems that affectedprevious analyses, using a panel of 19 OECDcountries over 1975–1995. Overall we findrelatively poor evidence in favor of sizeand over time fragmentation, and moreevidence of institutional and controlfragmentation.     

Fiscal consolidation under electoral risk

The European debt crisis has uncovered serious tension between democratic politics and market pressure in contemporary democracies. This tension arises when governments implement unpopular fiscal consolidation packages in order to raise their macroeconomic credibility among financial investors. Nonetheless, the dominant view in current research is that governments should not find it difficult to balance demands from voters and investors because the economic and political costs of fiscal consolidations are low. This would leave governments with sufficient room to promote fiscal consolidation according to their ideological agenda. This article re‐examines this proposition by studying how the risk of governments to be replaced in office affects the probability and timing of fiscal consolidation policies. The results show that governments associate significant electoral risk with consolidations because electorally vulnerable governments strategically avoid consolidations towards the end of the legislative term in order to minimise electoral punishment. Specifically, the predicted probability of consolidation decreases from 40 per cent after an election to 13 per cent towards the end of the term when the government's margin of victory is small. When the electoral margin is large, the probability of consolidation is roughly stable at around 35 per cent. Electoral concerns are the most important political determinant of consolidations, leaving only a minor role for ideological concerns. Governments, hence, find it more difficult to reconcile political and economic pressures on fiscal policy than previous, influential research implies. The results suggest that existing studies under‐estimate the electoral risk associated with consolidations because they ignore the strategic behaviour that is established in this analysis.     

Fiscal Federalism in South Africa

The constitutional change in South Africa in the 1990s broughtabout the decentralization of substantial budgetary responsibilityto newly created provincial governments. This study capturesthe new assignment of functions and resources to the differentspheres of government in South Africa and provides an assessmenton the basis of a framework derived from fiscal federalism principles.It concludes that there is a substantial congruence betweenwhat can be viewed as theoretically desirable and what is outlinedin the South African Constitution of 1996, but observes significantdivergences between the Constitution and actual practice.     

Tax and Expenditure Limitations and the Fiscal Response of Local Government: Asymmetric Intra-Local Fiscal Effects

This article empirically investigates the effects of introducing statewide measures to limit the ability of local jurisdictions to raise revenue or make expenditures. It does so in intervals of five years over a 25-year period, using fiscal observations for 31,804 units of local government in 787 metropolitan counties across the contiguous United States. Specifically explored is the effect of tax and expenditure limitations on the variation in revenues and expenditures between general purpose governments and school districts within county areas. Rather than imposing a uniform constraint across jurisdictions, tax and expenditure limitations (TELs) are associated with increased variation across both general purpose and school district revenues and expenditures and, by implication, increased service differentials. Effects are found to be asymmetric, with increased variation greatest within counties comprising the urban core and those with relatively more disadvantaged populations. The implications are that TELs are most constraining on the ability of governments serving economically less prosperous and at risk populations to meet public service needs. Such differential effects are of more than questionable merit and are the result of the application of blunt instruments to what is often an undemonstrated need. The outcome impairs both the efficiency and responsiveness of the local public sector.     

Fiscal decentralization and natural hazard risks

At least to some extent due to pressure from international donors, many countries have become more fiscally decentralized the underlying premise being that greater decentralization might improve the provision of local public goods and services. We test this proposition by determining whether relatively more decentralized countries fare better when natural disasters strike in terms of its effects on the population. Overall, we find evidence supporting our maintained hypothesis, though the effect appears much more robust in developing countries.     

Fiscal Decentralization and Provincial-Level Fiscal Disparities in China: A Sino-U.S. Comparative Perspective

Since China's 1994 fiscal reform, increasing concerns have been voiced about fiscal disparities across the country. Can local governments fairly and effectively fulfill basic public services such as primary education, public health, and social welfare? This essay traces the evolution of intergovernmental relations in China since 1978. The fluctuation of provincial level fiscal distribution over time and the underlying factors behind fiscal inequality, as compared to a decentralized American revenue system, are analyzed. The author, Zhirong Jerry Zhao of the University of Minnesota, argues for additional research on alternative measures of local fiscal capacity.