City Finances and the National Economy

City governments were better prepared to face the 1990–1992recession than were state governments, and they adjusted theirbudgets with relatively less fanfare. The absence of widespreadbankruptcy notwithstanding, the fiscal position of cities hasdeterioratedandsome ofthe necessary adjustments were painful.Services were reduced as real per capita expenditure growthdeclined, taxes were increased, and the entire local governmentsector remained in deficit during the past six years. The problemhas not been softened by federal or state policies; in fact,the flow of both federal and state aid slowed markedly duringthe late 1980s. A combination of economic and social forcessuggests that many of the nation's older cities will not outgrowthis fiscal stress and their budgetary well-being will be moredependent on state and federal policies.     

Fiscal Decentralization and Intergovernmental Transfers in Less Developed Countries

This article addresses the issue of fiscal decentralizationin developing countries, and the use of intergovernmental transfersto achieve this objective. We find that developing countrieshave more centralized fiscal structures and argue that thisis consistent with the theory of fiscal federalism. Economicdevelopment, however, does push the advantage toward decentralization.We also show that developing countries use a wide variety oftransfer instruments to fund local governments, and that theseinstruments give the national government varying degrees ofcontrol over local government finances.     

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.     

Mobilizing local resources in developing countries

Many developing countries are putting increased pressure on local governments to mobilize resources, especially to meet the recurrent costs of operating and maintaining locally sited capital projects. Local taxes, user charges and voluntary contributions are all possible mechanisms to carry out these efforts. Yet several important issues arise whenever these mobilization instruments are contemplated and evaluated. Several, often competing, objectives must be considered when evaluating fiscal instruments including the ability of the mechanism to raise revenues, its effect on economic efficiency, its equity implications and its administrative feasibility. After discussing each of these objectives, we show how numerous constraints, including those imposed by the political/legal system, administrative structure, the economy and the culture of the country, must be recognized while searching for a workable set of reforms that will mobilize additional resources without doing great harm to the other objectives. The key to these reforms would seem to be incentives or disincentives inherent in the revenue structure. Without recognizing these incentives or attempting to alter them, resource mobilization efforts are likely to go astray.