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 d...

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Bibliographic Details
Published in:Public budgeting & finance 1999-03, Vol.19 (1), p.3-25
Main Author: de Mello Jr, Luiz R.
Format: Article
Language:English
Subjects:
Accountability
Budgets
Coordination
Decentralization
Developing countries
Efficiency
Expenditures
Federal government
Fiscal policy
Funding
Government
Government spending
Impact analysis
Incentives
Intergovernmental relations
LDCs
Macroeconomics
Manycountries
Policy making
Politics
Public sector
Society
Studies
Tax revenues
Transparency
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Summary: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.
ISSN:0275-1100
1540-5850
DOI:10.1046/j.0275-1100.1999.01154.x