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MACRO FEDERALISM
AND LOCAL FINANCE
Edited by ANWAR SHAH
PUBLIC SECTOR
GOVERNANCE AND
ACCOUNTABILITY SERIES
(c) The International Bank for Reconstruction and Development / The World Bank
MACRO FEDERALISM AND
LOCAL FINANCE
(c) The International Bank for Reconstruction and Development / The World Bank
Introduction to the Public Sector Governance and Accountability Series
Anwar Shah, Series Editor
A well-functioning public sector that delivers quality public services consistent with citizen
preferences and that fosters private market-led growth while managing fiscal resources pru-
dently is considered critical to the World Bank’s mission of poverty alleviation and the
achievement of the Millennium Development Goals. This important new series aims to
advance those objectives by disseminating conceptual guidance and lessons from practices
and by facilitating learning from each others’ experiences on ideas and practices that pro-
mote responsive (by matching public services with citizens’ preferences), responsible (through
efficiency and equity in service provision without undue fiscal and social risk), and account-
able (to citizens for all actions) public governance in developing countries.
This series represents a response to several independent evaluations in recent years that
have argued that development practitioners and policy makers dealing with public sector
reforms in developing countries and, indeed, anyone with a concern for effective public gov-
ernance could benefit from a synthesis of newer perspectives on public sector reforms. This
series distills current wisdom and presents tools of analysis for improving the efficiency,
equity, and efficacy of the public sector. Leading public policy experts and practitioners have
contributed to this series.
The first 14 volumes in this series, listed below, are concerned with public sector account-
ability for prudent fiscal management; efficiency, equity, and integrity in public service pro-
vision; safeguards for the protection of the poor, women, minorities, and other disadvantaged
groups; ways of strengthening institutional arrangements for voice, choice, and exit; means
of ensuring public financial accountability for integrity and results; methods of evaluating
public sector programs, fiscal federalism, and local finances; international practices in local
governance; and a framework for responsive and accountable governance.
Fiscal Management
Public Services Delivery
Public Expenditure Analysis
Local Governance in Industrial Countries
Local Governance in Developing
Countries
Intergovernmental Fiscal Transfers:
Principles and Practice
Participatory Budgeting
Budgeting and Budgetary Institutions
Local Budgeting
Local Public Financial Management
Performance Accountability and
Combating Corruption
Tools for Public Sector Evaluations
Macro Federalism and Local Finance
Managing Natural Resources and the
Environment
(c) The International Bank for Reconstruction and Development / The World Bank
PUBLIC SECTOR
GOVERNANCE AND
ACCOUNTABILITY SERIES
MACRO FEDERALISM AND
LOCAL FINANCE
Edited by ANWAR SHAH
THE WORLD BANK
Washington, D.C.
(c) The International Bank for Reconstruction and Development / The World Bank
©2008 The International Bank for Reconstruction and Development / The World Bank
1818 H Street, NW
Washington, DC 20433
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All rights reserved
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This volume is a product of the staff of the International Bank for Reconstruction and
Development / The World Bank. The findings, interpretations, and conclusions expressed
in this volume do not necessarily reflect the views of the Executive Directors of The World
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All other queries on rights and licenses, including subsidiary rights, should be
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ISBN: 978-0-8213-6326-3
eISBN: 978-0-8213-6327-0
DOI: 10.1596/978-0-8213-6326-3
Library of Congress Cataloging-in-Publication Data
Macro federalism and local finance / Anwar Shah, editor.
p. cm.
Includes bibliographical references and index.
ISBN 978-0-8213-6326-3 — ISBN 978-0-8213-6327-0 (electronic)
1. Intergovernmental fiscal relations—Case studies. 2. Federal government—Case
studies. 3. Local finance—Case studies. 4. Decentralization in government—Case studies.
5. Finance, Public—Case studies. I. Shah, Anwar.
HJ197.M33 2008
336—dc22
2008006103
(c) The International Bank for Reconstruction and Development / The World Bank
v
Contents
Foreword xi
Preface xiii
Acknowledgments xv
Contributors xvii
Abbreviations xxi
Overview 1
Anwar Shah
Part I Macro Federalism
Macro Federalism: An Introduction with
Principal Reference to the Canadian
Experience
9
Thomas J. Courchene
Globalization, Confederalism, and the
Information-Knowledge Revolution 11
Defining Macro Federalism 18
Outline of the Analysis 19
Internal Economic Integration 20
Transfer Dependency: A Macro Federalism Approach
to Regional Policy and Fiscal Federalism 34
Monetary Policy and Central Banking 47
1
CHAPTER
(c) The International Bank for Reconstruction and Development / The World Bank
Fiscal Policy 53
Miscellaneous Macro Federalism Issues 57
Overall Conclusions 68
Notes 74
References 75
Globalization, the Information Revolution,
and Emerging Imperatives for Rethinking
Fiscal Federalism
77
Anwar Shah
Governance Implications of Globalization and the
Information Revolution 78
Localization 84
Emerging Jurisdictional Realignments: Glocalization 85
Emerging Imperatives for Rethinking Fiscal Federalism 86
Federalism and Regional Equity: Reflections on Alternative
Approaches to Reducing Regional Disparities 93
Conclusions: The New Vision of Multicentered
Governance 103
Notes 104
References 104
Federalism and Macroeconomic Performance 107
Anwar Shah
Institutional Environment for Macroeconomic
Management 109
Fiscal Decentralization and Fiscal Performance:
Some Conclusions 136
Notes 137
References 137
Regional Income Disparities and Convergence:
Measurement and Policy Impact Evaluation
143
Raja Shankar and Anwar Shah
Measures of Regional Inequality 144
vi Contents
4
2
3
(c) The International Bank for Reconstruction and Development / The World Bank
Regional Disparities: A Cross-Country Snapshot 149
Regional Income Disparities and Convergence 157
Regional Inequalities and Convergence: A Scorecard
on National Policies for Regional Development 169
Annex 4A: Regional Disparity Trends 171
Annex 4B: Data Sources 188
Notes 189
References 189
Harmonizing Taxation of Interstate Trade
under a Subnational VAT: Lessons from
International Experience
193
Mahesh C. Purohit
Brazil 194
Canada 196
European Union 198
The Little Boat Model 200
India 202
The Recommended Options 208
Conclusion 210
Notes 210
References 212
Subnational Borrowing, Insolvency, and
Regulation
215
Lili Liu and Michael Waibel
Benefits and Risks of Subnational Borrowing 217
Rationales for Regulating Subnational
Borrowing 221
Frameworks for Subnational Borrowing:
Ex ante Regulation 223
Regulatory Frameworks for Subnational Borrowing:
Insolvency Mechanisms 226
Conclusions 231
Notes 234
References 239
Contents vii
5
6
(c) The International Bank for Reconstruction and Development / The World Bank
Part II Local Finance
A Local Perspective on Fiscal Federalism:
Practices, Experiences, and Lessons from
Industrial Countries
245
Melville L. McMillan
Expenditure Responsibilities of Local Government 246
Local Government Revenue 263
Summary, Conclusions, and Lessons 283
Notes 287
References 288
Decentralized Governance in Developing and
Transition Countries: A Comparative Review
291
Sebastian Eckardt and Anwar Shah
The Building Blocks of Citizen-Centered Governance
in Decentralized Systems 292
A Simple Scorecard to Measure Decentralized
Citizen-Centered Governance 301
Conclusion 314
Annex: Country Sample 316
Note 318
References 318
Index 323
BOXES
2.1 Emerging Rearrangements of Government Assignments:
Glocalization 85
3.1 Legislated Fiscal Rules: Do They Matter for
Fiscal Outcomes? 124
FIGURES
1.1 The Economic Integration Continuum 24
1.2 A Geometry of Regional Dependence 37
4.1 Regional Disparities in Industrial Countries 151
4.2 Regional Disparities in Nonindustrial Countries 155
4.3 Regional Disparity Trends in Federal Countries 158
4.4 Regional Disparity Trends in Unitary Countries 162
4A.1 Regional Disparity Trends in Canada 171
viii Contents
7
8
(c) The International Bank for Reconstruction and Development / The World Bank
4A.2 Regional Disparity Trends in the United States 172
4A.3 Regional Disparity Trends in Brazil 173
4A.4 Regional Disparity Trends in India 174
4A.5 Regional Disparity Trends in Mexico 175
4A.6 Regional Disparity Trends in Pakistan 176
4A.7 Regional Disparity Trends in the Russian Federation 177
4A.8 Regional Disparity Trends in Chile 178
4A.9 Regional Disparity Trends in China 180
4A.10 Regional Disparity Trends in Indonesia 181
4A.11 Regional Disparity Trends in the Philippines 182
4A.12 Regional Disparity Trends in Romania 183
4A.13 Regional Disparity Trends in Sri Lanka 184
4A.14 Regional Disparity Trends in Thailand 185
4A.15 Regional Disparity Trends in Uzbekistan 186
4A.16 Regional Disparity Trends in Vietnam 187
8.1 Political Freedom and Bureaucratic Quality: Partial
Correlation Controlling for Per Capita GDP Log 293
8.2 Accountability 303
8.3 Fiscal Responsibility 310
TABLES
1.1 Globalization and the Information-Knowledge Revolution:
Variations on the New Technoeconomic Paradigm 12
1.2 Selected Institutional Features of Mature Federations 21
1.3 Comparison of Constitutional Provisions 22
1.4 Central Bank Structure 48
2.1 Governance Structure: 20th versus 21st Century 87
3.1 Fiscal Decentralization and Fiscal Performance:
Selected Regressions 114
3.2 Fiscal Rules at a Glance 123
3.3 Fiscal Decentralization and Fiscal Performance:
A Summary of Empirical Results 136
4.1 Regional Disparities in Industrial Countries 150
4.2 Regional Disparities in Nonindustrial Countries 153
4.3 Regression Results 156
4.4 Spearman Rank Correlation 157
4.5 Beta Convergence Results in Federal Countries 159
4.6 Beta Convergence Results in Unitary Countries 164
4.7 Regional Inequalities and Convergence: A Summary View 170
4A.1 Regional Disparity Trends in Canada 171
Contents ix
(c) The International Bank for Reconstruction and Development / The World Bank
[...]... national and global economies on the one hand and the resultant emerging changes in the nature of federalism itself on the other The purpose of the next section is to highlight aspects of these trends in terms of how they may relate to macro federalism (c) The International Bank for Reconstruction and Development / The World Bank Macro Federalism: An Introduction 11 Globalization, Confederalism, and the... dynamic-efficiency and growth implications of fiscal arrangements, and (c) providing a comparative evaluation of local government organization and finances The book addresses glocalization, a term that embodies globalization and two additional distinct yet interconnected concerns: (a) macro federalism, or the institutional dimensions of macroeconomics I 1 (c) The International Bank for Reconstruction and Development... factor and goods mobility and that level the playing field by ensuring common minimum standards in merit public services and infrastructure offer the best hope for overcoming the economic divide within nations The chapter concludes with a bold new vision of a globalized and localized world where citizens reassert their roles as governors and principals and, in the process, local governments and “beyond-government”... particularly urban and local economics, fiscal federalism, and demand and supply of public goods and services He has also provided policy advice to governments in both industrial and developing countries in those areas MAHESH C PUROHIT is director of the Foundation for Public Economics and Policy Research Previous appointments included member-secretary of the Empowered Committee of State Finance Ministers... arrangements agreed on by the grantor and recipients; (e) higher-level government assistance for expanding local access to capital finance is important in dealing with infrastructure deficiencies; (c) The International Bank for Reconstruction and Development / The World Bank 6 Anwar Shah and (f) democratic accountability and local autonomy are central to successful local government operations The ultimate... include international finance and trade, investment and monetary law, and public finance and economic history His work experiences include the European Central Bank, the International Monetary Fund, and the World Bank He holds law degrees from the University of Vienna, Austria, and an MSc in Economics from the London School of Economics (c) The International Bank for Reconstruction and Development / The... globalization and the information revolution on multiorder governance structures, (b) reviewing the dynamic-efficiency and growth implications of intergovernmental fiscal relations, and (c) providing a comparative review of local government organization and finances and their consistency with a changing role of local government in the new economic era xiii (c) The International Bank for Reconstruction and Development... 7.5 Local Government Consumption of Fixed Capital and Debt, 2004 262 7.6 Main Taxes and Selected Other Own-Source Revenues of Local Governments in OECD Member Countries as a Percentage of GDP, 2003 264 7.7 Composition of Local Government Tax Revenue in OECD Countries, 2003 267 7.8 Tax, Nontax, and Grant Revenue of Local Governments, 2003 274 7.9 Sources of Nontax Own-Source Revenue, 2003 275 7.10 Local. .. regulation of capital markets Part II: Local Finance Globalization and the information revolution are motivating a large and growing number of countries worldwide to reexamine the roles of various orders of government and their partnership with the private sector and civil society These reforms typically involve shifting responsibilities to local governments and “beyond-government” providers, with... State Finance Ministers, secretary of the Committee of Chief Ministers on Value Added Tax and Incentives to Backward Areas, and member-secretary of the Committee of Finance Secretaries on Backward Area Incentives Purohit has been a professor at the National Institute of Public Finance and Policy, New Delhi; a senior research fellow at the Centre for Advanced Studies in Industrial Economics and Public Finance, . for Reconstruction and Development / The World Bank
MACRO FEDERALISM AND
LOCAL FINANCE
(c) The International Bank for Reconstruction and Development / The. Evaluations
Macro Federalism and Local Finance
Managing Natural Resources and the
Environment
(c) The International Bank for Reconstruction and Development
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Xem thêm: MACRO FEDERALISM AND LOCAL FINANCE pdf, MACRO FEDERALISM AND LOCAL FINANCE pdf, BOX 3.1 Legislated Fiscal Rules: Do They Matter for Fiscal Outcomes?, FIGURE 8.1 Political Freedom and Bureaucratic Quality: Partial Correlation Controlling for Per Capita GDP Log, TABLE 1.1 Globalization and the Information-Knowledge Revolution: Variations on the New Technoeconomic Paradigm, TABLE 2.1 Governance Structure: 20th versus 21st Century, TABLE 3.3 Fiscal Decentralization and Fiscal Performance: A Summary of Empirical Results, TABLE 7.8 Tax, Nontax, and Grant Revenue of Local Governments, 2003