Framework for Expenditure Assignment

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Framework for Expenditure Assignment
Decentralization and Intergovernmental Fiscal
Reform 24 March 2003 Dana WeistPRMPS
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Design Determines Impact

• Expenditures government services
• Design affects availability, quality, access and
  appropriate use of public services e.g. health,
  education, water, roads etc.
• Can ultimately affect macroeconomic stability

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Macroeconomic Stability

• Key factor is hard budget constraint
• Creates incentives for subnational fiscal
  discipline
• Limits risk of central government
• Can be softened through several channels
  (intergovernmental fiscal system, financial
  system, SOEs etc.)

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Equity

• Extent of fiscal equalization
• Ways and means for targeting poor places and poor
  people

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Efficiency

• Considerations for assignment public goods,
  externalities, subsidiarity, economies of scale,
  public sector competition
• Do local services respond to local needs?
• Do citizens have meaningful opportunities for
  voice?
• Do officials face incentives to respond?

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Common Problems

• Unclear delineation between public and private
  sectors
• Lack of formal assignment
• Concurrent assignment among levels of government
• No mechanisms for coordination and conflict
  resolution
• Inefficient assignments

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Decentralization of Functions

• Organization
• Planning
• Personnel
• Infrastructure
• Resources
• Regulation

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Poverty Reduction Strategies

• Elements of a successful anti-poverty strategy
• Identify the poor
• Understand reasons and factors that lead to
  poverty
• Design a set of policies (e.g. PRS)
• Cost-effective implementation
• Fiscal decentralization as a key to policy design
  and effectiveness

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Poverty Reduction Strategy (PRS)

• Proximity to target group
• Identify beneficiaries and willingness to pay
• Distribution policy becomes intergovernmental
• Economies of place

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Poverty Reduction Roles

• Policy interventions in a unitary system
• Multi-level fiscal systems
• Fiscal decentralization and service delivery
• Intergovernmental transfers
• Local participation and accountability

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Key Points

• Ultimately, no single best assignment
• Ideally, services should be provided at lowest
  level of government where benefits lie
• Public provision doesnt imply public production
• Clarity is critically important