Intergovernmental Fiscal Transfers : Principles and Practice

Foreword xv Preface xvii Acknowledgments xix Contributors xxi Overview xxvii Robin Boadway and Anwar Shah 1 A Practitioner's Guide to Intergovernmental Fiscal Transfers 1(54) Anwar Shah Instruments of Intergovernmental Finance 2(7) Achieving Results-Based Accountability through Performance-Oriented Transfers 9(6) Designing Fiscal Transfers: Dividing the Spoils or Creating a Framework for Accountable and Equitable Governance? 15(29) Institutional Arrangements for Fiscal Relations 44(4) Lessons from International Practices 48(3) References 51(4) Part I The Principles 2 Grants in a Federal Economy: A Conceptual Perspective 55(20) Robin Boadway Three Views of the Role of Grants 57(8) Designing the System of Federal-Regional Fiscal Relations 65(9) Notes 74(1) 3 Equity and Efficiency Aspects of Interagency Transfers in a Multigovernment Framework 75(32) Paul Bernd Spahn The Case for Interjurisdictional Equity 76(2) Designing Equalization Schemes 78(15) The Case for Intragovernmental Efficiency 93(3) Designing Interagency Relations and Microtransfers 96(8) Summary 104(1) Notes 105(1) References 106(1) 4 Achieving Economic Stabilization by Sharing Risk within Countries 107(26) J rgen von Hagen Principles of Regional Risk Sharing 109(5) Moral Hazard and the Political Economy of Regional Insurance 114(3) Empirical Evidence 117(6) The Macroeconomics of Regional Risk Sharing and Stabilization 123(2) Conclusions 125(1) Annex: A Model of Regional Stabilization and Risk Sharing 126(3) Notes 129(1) References 129(4) 5 Grants and Soft Budget Constraints 133(40) Marianne Vigneault The Soft Budget Constraint Problem Defined 136(1) Implications of Soft Budget Constraints 137(1) The Soft Budget Constraint Problem in Theory 138(7) The Soft Budget Constraint Problem in Practice: Country-Level Evidence 145(17) Lessons Learned 162(5) Concluding Comments 167(1) Notes 168(1) References 169(4) 6 The Political Economy of Interregional Grants 173(30) Motohiro Sato Political Motive and Political Competition 176(5) Fragmented Government and Rent Seeking 181(4) Intergovernmental Relations 185(4) The Commitment Problem 189(4) Institutional Reform 193(3) Notes 196(1) References 197(6) 7 The Incentive Effects of Grants 203(56) Michael Smart The Taxonomy of Grants 204(1) Vertical Transfers 205(6) Horizontal Transfers 211(9) Concluding Comments 220(1) Notes 221(1) References 221(4) 8 The Impact of Intergovernmental Fiscal Transfers: A Synthesis of the Conceptual and Empirical literature 225(1) Shama Gamkhar and Anwar Shah Impact of Intergovernmental Transfers on Local Government Behavior: Theoretical Hypotheses 226(5) Empirical Approaches to Measuring the Impact of Intergovernmental Transfers on Local Fiscal Behavior 231(21) Concluding Remarks 252(2) Notes 254(1) References 255(4) Part II The Practice 9 The Legal Architecture of Intergovernmental Transfers: A Comparative Examination 259(34) Sujit Choudhry and Benjamin Perrin Law and the Political Economy of Fiscal Federalism 260(2) Case Studies 262(22) Conclusions 284(5) Notes 289(1) References 290(3) 10 Institutional Arrangements for Intergovernmental Fiscal Transfers and a Framework for Evaluation 293(26) Anwar Shah Institutional Arrangements for Intergovernmental Transfers 294(10) Evaluating Institutional Arrangements for Equalizing Transfers Using a New Institutional Economics Framework 304(2) Comparing Alternate Institutional Arrangements Using a New Institutional Economics Framework 306(4) From Theory to Practice: How Accurate Are the Predictions of the New Institutional Economics? 310(6) Concluding Remarks 316(1) Notes 316(1) References 317(2) 11 Resolving Fiscal Imbalances: Issues in Tax Sharing 319(20) M. Govinda Rao Revenue Sharing as an Instrument of Intergovernmental Transfer 321(2) Sharing the Tax Base: Coordination, Efficiency, and Incentives 323(5) Revenue Sharing in Multilevel Fiscal Systems 328(5) Revenue-Sharing Formulas 333(3) Concluding Remarks 336(1) Notes 336(1) References 337(2) 12 Macro Formulas for Equalization 339(22) Leonard S. Wilson The Theory of Equalization 340(5) Macro Formulas 345(1) Macro Bases as Measures of Fiscal Capacity 346(8) Equalization in Canada, Australia, and South Africa 354(3) Conclusion 357(1) Notes 358(1) References 358(3) 13 Fiscal Capacity Equalization in Horizontal Fiscal Equalization Programs 361(36) Bernard Dafflon Local Fiscal Disparities 363(3) Conceptual Issues 366(2) Needs Equalization 368(4) Revenue Equalization 372(8) Designing Horizontal Equalization 380(10) Conclusion and Policy Proposals 390(1) Notes 391(2) References 393(4) 14 Compensating Local Governments for Differences in Expenditure Needs in a Horizontal Fiscal Equalization Program 397(28) Andrew Reschovsky Defining Expenditure Needs and Costs 400(1) Why Costs Differ 401(3) Approaches to Estimating Costs 404(6) Costing Methodologies in Selected Countries 410(9) Lessons for Developing Countries 419(2) Notes 421(1) References 422(3) 15 Financing Capital Expenditures through Grants 425(28) Jeffrey Petchey and Garry MacDonald Rationale for Capital Grants 426(5) Issues in the Design of Capital Grants 431(1) Real-World Experience with Capital Grants 432(3) A Capital Grant Simulation Model 435(10) Conclusion 445(1) Annex: Economic Rationales for Grants 446(3) Notes 449(1) References 450(3) 16 Grants to Large Cities and Metropolitan Areas 453(30) Enid Slack Characteristics of Large Cities and Metropolitan Areas and the Implications for Grant Design 454(5) Types of Transfers and Rationales for Their Use 459(1) Rationales for Intergovernmental Transfers 460(8) Grants to Large Cities and Metropolitan Areas 468(7) Concluding Comments 475(1) Notes 476(2) References 478(5) 17 Grants to Small Urban Governments 483(28) Harry Kitchen What Is a Small Urban Area? 483(2) What Are the Expenditure Responsibilities of Small Urban Areas? 485(1) How Should Expenditures Be Financed? 486(2) How Important Are Grants? 488(10) How Should Grants Be Designed? 498(7) Should Grants to Small Urban Areas Differ from Grants to Other Municipalities? 505(1) Summary 506(1) References 507(4) 18 Intergovernmental Transfers and Rural Local Governments 511(28) Melville L. McMillan Country Profiles 511(19) Overview and Reflections 530(5) Conclusion 535(1) Notes 536(1) References 537(2) Index 539