Advertisement

Expenditure and Revenue Assignment: Principles

  • Harry KitchenEmail author
  • Melville McMillan
  • Anwar Shah
Chapter

Abstract

This chapter provides a conceptual overview of the principles of expenditure and revenue assignment to local governments. Local government is seen to be more aware of local preferences and conditions and more accountable to local residents than senior governments. Core and noncore responsibilities are distinguished (e.g., local streets versus schooling). Financing follows function. Financing follows the benefit criterion; that is, local residents pay for the local services from which they benefit—with user charges and local taxes although grants may be needed. Various (especially) noncore services involve interjurisdictional spillovers and/or redistributive considerations and so, if assigned to local governments require intergovernmental transfers to achieve efficiency and equity objectives. Financing alternatives and appropriate uses are reviewed.

References

  1. Bahl, Roy, and Richard M. Bird. 2018. Fiscal Decentralization and Local Finance in Developing Countries. Northampton, MA: Edward Elgar Publishing.CrossRefGoogle Scholar
  2. Bahl, Roy W., and Johannes F. Linn. 1992. Urban Public Finance in Developing Countries. New York: Oxford University Press.Google Scholar
  3. Besley, Timothy, and Stephen Coate. 2003. Centralized versus Decentralized Provision of Local Public Goods: A Political Economy Approach. Journal of Public Economics 87 (12): 2611–2637.CrossRefGoogle Scholar
  4. Bird, Richard M. 1993. Threading the Fiscal Labyrinth: Some Issues in Fiscal Decentralization. National Tax Journal 46 (2): 207–227.Google Scholar
  5. ———. 1999. Rethinking Subnational Taxes: A New Look at Tax Assignment. IMF Working Paper 165, International Monetary Fund, December.Google Scholar
  6. ———. 2000. Intergovernmental Fiscal Relations: Universal Principles, Local Applications. Working Paper 00-02, International Studies Program, School of Policy Studies, Georgia State University, April.Google Scholar
  7. Bird, Richard M., and Michael Smart. 2002. Intergovernmental Fiscal Transfers: Some Lessons for International Experience. World Development 30 (6): 899–912.CrossRefGoogle Scholar
  8. Bird, Richard M., and Francois Vaillancourt, eds. 1998. Fiscal Decentralization in Developing Countries. Cambridge: Cambridge University Press.Google Scholar
  9. Bird, Richard M., Robert D. Ebel, and Christine I. Wallich, eds. 1995. Decentralization of the Socialist State: Intergovernmental Finance in Transition Countries. Washington, DC: The World Bank.Google Scholar
  10. Bjornskov, Christian, Axel Drehe, and Justina A.V. Fischer. 2008. On Decentralization and Life Satisfaction. Economics Letters 99 (1): 147–151.CrossRefGoogle Scholar
  11. Boadway, Robin, and Frank Flatters. 1982. Efficiency and Equalization Payments in a Federal System of Government: Synthesis and Extension of Recent Results. Canadian Journal of Economics 15 (4): 613–633.CrossRefGoogle Scholar
  12. Boadway, Robin, and Anwar Shah. 2009. Fiscal Federalism: Principles and Practice of Multiorder Governance. New York: Cambridge University Press.CrossRefGoogle Scholar
  13. Burki, Shahid Javed, Guillermo E. Perry, and William R. Dillinger. 1999. Beyond the Center: Decentralizing the State. In World Bank Latin American and Caribbean Studies. Washington, DC: The World Bank.Google Scholar
  14. Byrnes, Joel, and Brian Dollery. 2002. Do Economies of Scale Exist in Australian Local Government? A Review of the Recent Evidence. Urban Policy and Research 20 (4): 391–414.CrossRefGoogle Scholar
  15. Council of Europe. 1985. European Charter of Local Self-Government. http://conventions.coe.int/treaty/en/Treaties/Html/122.htm.
  16. Dahlby, Bev. 2001. Taxing Choices: Issues in the Assignment of Taxes in Federations. ISSJ 167/2001, UNESCO. Oxford: Blackwell Publishers.Google Scholar
  17. Dethier, Jean-Jacques, ed. 2000. Governance, Decentralization and Reform in China, India and Russia. Dordrecht: Kluwer Academic Publishers.Google Scholar
  18. Diaz-Serrano, Luis, and Andres Rodriquez-Pose. 2012. Decentralization, Subjective Well-Being, and the Perceptions of Institutions. Kyklos 65 (2): 179–193.CrossRefGoogle Scholar
  19. Dollery, Brian E., and Joe L. Wallis. 2001. The Political Economy of Local Government. Cheltenham: Edward Elgar.Google Scholar
  20. Ebel, Robert D., and Serdar Yilmaz. 2001. Concept of Fiscal Decentralization and Worldwide Overview. Paper presented at the Symposium of the Quebec Commission on Fiscal Imbalance, Quebec City, Quebec, September 13–14.Google Scholar
  21. Fisher, Ronald C. 1996. State and Local Public Finance. Chicago, IL: Richard D. Irwin.Google Scholar
  22. Gao, Song, Xiangyi Meng, and Li Zhang. 2014. Fiscal Decentralization and Life Satisfaction: Evidence from Urban China. Social Indicators Research 119 (3): 1177–1194.CrossRefGoogle Scholar
  23. Gramlich, Edward M. 1977. Intergovernmental Grants: A Review of the Empirical Literature. In The Political Economy of Fiscal Federalism, ed. W.E. Oates, 219–239. Lexington, MA: Lexington Books.Google Scholar
  24. Helliwell, John F., and Haifang Huang. 2008. How’s Your Government? International Evidence Linking Good Government and Well-Being. British Journal of Political Science 38 (4): 595–619.CrossRefGoogle Scholar
  25. Helliwell, John F., Haifang Huang, Shawn Grover, and Shun Wang. 2018. Empirical Linkages Between Good Governance and National Well-Being. Journal of Comparative Economics 46 (4): 1332–1346.CrossRefGoogle Scholar
  26. Hooghe, Liesbet, and Gary Marks. 2016. Community, Scale, and Regional Governance: A Postfunctionalist Theory of Governance. Vol. II. Oxford: Oxford University Press.CrossRefGoogle Scholar
  27. Hooghe, Liesbet, Gary Marks, and Arjan H. Schakel. 2010. The Rise of Regional Authority. New York: Routledge.CrossRefGoogle Scholar
  28. Hooghe, Liesbet, Gary Marks, Arjan H. Schakel, Sandra Chapman Osterkatz, Sara Niedzwiecki, and Sarah Shair-Rosenfield. 2016. Measuring Regional Authority: A Postfunctionalist Theory of Governance. Vol. I. Oxford: Oxford University Press.CrossRefGoogle Scholar
  29. Ingram, Gregory K., and Yu-Hung Hong. 2008. Fiscal Decentralization and Land Policies. Cambridge, MA: Lincoln Institute of Land Policy.Google Scholar
  30. Ivanyna, Maksym, and Anwar Shah. 2014. How Close Is Your Government to Its People? Worldwide Indicators on Localization and Decentralization. Economics 8: 1–61.  https://doi.org/10.5018/economics-ejournal.ja.2014-3.CrossRefGoogle Scholar
  31. King, David. 1984. Fiscal Tiers: The Economics of Multi-level Government. London: George, Allen and Unwin.Google Scholar
  32. Kitchen, Harry M., and Enid Slack. 1993. Business Property Taxation. Discussion Paper 93-24, Government and Competitiveness Series, Queen’s University, Kingston, ON.Google Scholar
  33. Litvack, Jennie, Junaid Ahmad, and Richard Bird. 1998. Rethinking Decentralization in Developing Countries, PREM Sector Studies Series. Washington, DC: World Bank.CrossRefGoogle Scholar
  34. Manor, James. 1999. The Political Economy of Democratic Decentralization. Washington, DC: The World Bank.CrossRefGoogle Scholar
  35. Martinez-Vazquez, Jorge, and Bob Searle, eds. 2007. Fiscal Equalization: Challenges in the Design of Intergovernmental Transfers. New York: Springer.Google Scholar
  36. McLure, Charles E., ed. 1983. Tax Assignments in Federal Countries. Canberra: Australian National University Press.Google Scholar
  37. ———. 1999. The Assignment Problem: Conceptual and Administrative Considerations in Achieving Subnational Fiscal Autonomy. Washington, DC: The World Bank.Google Scholar
  38. McMillan, Melville L. 1976. Criteria for Jurisdictional Design: Issues in Defining the Scope and Structure of River Basin Authorities and Other Public Decision Making Bodies. Journal of Environmental Economics and Management 3 (1): 46–68.CrossRefGoogle Scholar
  39. ———. 1989. On Measuring Congestion of Local Public Goods. Journal of Urban Economics 26 (2): 131–137.CrossRefGoogle Scholar
  40. McMillan, Melville L., W.R. Wilson, and L.M. Arthur. 1981. The Publicness of Local Public Goods: Evidence from Ontario Municipalities. Canadian Journal of Economics 14 (4): 596–608.CrossRefGoogle Scholar
  41. Musgrave, Richard A. 1959. The Theory of Public Finance. New York: McGraw-Hill.Google Scholar
  42. ———. 1983. Who Should Tax, Where and What? In Tax Assignments in Federal Countries, ed. C.E. McLure, 2–19. Canberra: Australian National University Press.Google Scholar
  43. Oates, Wallace E. 1972. Fiscal Federalism. New York: Harcourt, Brace Jovanovich.Google Scholar
  44. ———. 1993. Fiscal Decentralization and Economic Development. National Tax Journal 46 (2, June): 237–243.Google Scholar
  45. ———. 1999. An Essay on Fiscal Federalism. Journal of Economic Literature 27 (3): 1120–1149.CrossRefGoogle Scholar
  46. ———. 2005. Towards a Second-Generation Theory of Fiscal Federalism. International Tax and Public Finance 12 (4, August): 349–373.CrossRefGoogle Scholar
  47. ———. 2008. The Evolution of Fiscal Federalism: Theory and Institutions. National Tax Journal 61 (2, June): 313–334.CrossRefGoogle Scholar
  48. OECD (Organization for Economic Co-operation and Development). 1987. Managing and Financing Urban Services Growth. Paris: OECD.Google Scholar
  49. ———. 1997. Managing Across Levels of Government. Paris: PUMA.Google Scholar
  50. ———. 1999. Taxing Powers of State and Local Government. OECD Tax Policy Studies, No. 1, Paris.Google Scholar
  51. ———. 2013. Fiscal Federalism 2014: Making Decentralization Work. Paris: OECD Publishing.Google Scholar
  52. ———. 2016. Fiscal Federalism 2016: Making Decentralization Work. Paris: OECD Publishing.Google Scholar
  53. ———. 2018. Assigning Responsibilities Across Levels of Government. OECD Working Papers on Fiscal Federalism, September. https://www.oecd-ilibrary.org/docserver/f0944eae-en.pdf?expires=1551479356&id=id&accname=guest&checksum=3046DD4B5D67CBCB4DCBCDC89D5ECC8D.
  54. Owens, Jeffrey, and John Norregaard. 1991. The Role of Lower Levels of Government: The Experience of Selected OECD Countries. In Local Government: An International Perspective, ed. Jeffrey Owens and Giorgio Panella, 3–54. Amsterdam: North-Holland.Google Scholar
  55. Rondinelli, Dennis. 1999. What is Decentralization. In Decentralization Briefing Notes, ed. J. Litvack and J. Seddon, 2–5. Washington, DC: World Bank Institute.Google Scholar
  56. Shah, Anwar. 1991. The New Federalism in Brazil. The World Bank Discussion Paper #124, Washington, DC.Google Scholar
  57. ———. 1994. The Reform of Intergovernmental Fiscal Relations in Developing and Emerging Market Economies, Policy and Research Series, 23. Washington, DC: The World Bank.CrossRefGoogle Scholar
  58. ———. 1999. Intergovernmental Transfers and Grants. In Decentralization Briefing Notes, ed. J. Litvack and J. Seddon, 27–31. Washington, DC: World Bank Institute.Google Scholar
  59. ———. 2004. Fiscal Decentralization in Developing and Transition Economies: Progress, Problems and the Promise. World Bank Policy Research Working Paper 3282, The World Bank, Washington DC, April.Google Scholar
  60. ———. 2006. A Comparative Institutional Framework for Responsive, Responsible and Accountable Local Governance. In Local Governance in Industrialized Countries, ed. Anwar Shah, 1–40. Washington, DC: The World Bank.CrossRefGoogle Scholar
  61. ———. 2014. Responsibility with Accountability: A FAIR governance framework for performance accountability of local governments. Zbornik Radova Ekonomskog Fakulteta u Rijeci 32 (2): 343–377.Google Scholar
  62. Shah, Anwar, and Theresa Thompson. 2004. Implementing Decentralized Local Governance: A Treacherous Road with Potholes, Detours and Road Closures. World Bank Policy Research Paper 3353, The World Bank, Washington DC, June.Google Scholar
  63. Stigler, George. 1957. Tenable Range of Functions of Local Government. In Federal Expenditure Policy for Economic Growth and Stability, ed. Joint Economic Committee, Subcommittee on Fiscal Policy, 213–219. Washington, DC.Google Scholar
  64. Ter-Minassian, Teresa, ed. 1997. Fiscal Federalism in Theory and Practice. Washington, DC: International Monetary Fund.Google Scholar
  65. Tiebout, Charles. 1956. A Pure Theory of Public Expenditures. Journal of Political Economy 64 (5): 416–424.CrossRefGoogle Scholar
  66. Tomaney, J., A. Pike, G. Torrisi, V. Tselios, and A. Rodríguez-Pose. 2011. Decentralisation Outcomes: A Review of Evidence and Analysis of International Data. Department for Communities and Local Government. https://blogs.ncl.ac.uk/curds/files/2013/02/DecentralisationReport.pdf.
  67. Tresch, Richard W. 2015. Public Finance: A Normative Theory. 3rd ed. Waltham, MA: Academic Press.Google Scholar
  68. Walsh, Cliff. 1992. Fiscal Federalism: An Overview of Issues and a Discussion of Their Relevance to the European Community. Canberra: Federalism Research Centre Discussion Paper No. 2, The Australian National University.Google Scholar
  69. Wiesner, Eduardo. 2003. Fiscal Federalism in Latin America: From Entitlements to Markets. New York: Inter-American Development Bank.Google Scholar
  70. World Bank. 1994. World Development Report, 1994: Infrastructure for Development. Washington, DC: The World Bank and Oxford University Press.CrossRefGoogle Scholar

Copyright information

© The Author(s) 2019

Authors and Affiliations

  1. 1.Department of EconomicsTrent UniversityPeterboroughCanada
  2. 2.University of AlbertaEdmontonCanada
  3. 3.Governance StudiesBrookings InstitutionWashington, DCUSA

Personalised recommendations