Andrey Timofeev

Choosing between Centralized and Decentralized Models of Tax Administration

The international experience shows a variety of approaches to the organization and degree of decentralization in tax administration. It is quite common to observe, even in countries that are otherwise significantly decentralized as is the case in the Scandinavian Countries, a highly centralized organization of tax administration. Nevertheless, there are other countries, in small number, where tax administration is highly decentralized; in some cases, as in Germany, even central government taxes are administered by the decentralized subnational governments. The fundamental questions addressed in this paper are the following: what is the most appropriate approach to organizing the vertical structure of tax administration, and what are the determinant factors that may make an approach more or less optimal in any particular country.

Propensity to Invest and the Additionality of Capital Transfers: A Country Panel Perspective

This paper takes stock of the last 80 years of theoretical and policy literature on the issue of capital grants. In addition, we provide empirical evidence on changes in the relative importance of capital grants, and their impact on fiscal outcomes for a large number of countries. In particular, our empirical analysis explores two claims often used to justify capital grants in practice: 1) Due to political economy reasons, local governments tend to underinvest relative to the level desired by the national government. We test this claim by comparing the propensity to invest of subnational vis-a-vis national governments. 2) The administrative and efficiency costs of earmarking grants for capital use are justified by their effect of inducing additional investments by subnational governments. We test this claim by comparing the propensity to invest of local governments out of capital grants compared to their propensity to invest out of general purpose (non-earmarked) grants and own resources.

Measuring the extent of fiscal decentralisation

The goal of this chapter is to develop a taxonomy of decentralisation measures and how they are related to each other. In addition to introducing a common language for the different strands of literature, this taxonomy is instrumental for studying the outcomes of decentralisation. Using cross-state data from the United States, we show that aggregating distinct dimensions of fiscal decentralisation into a single indicator inevitably leads to a loss of information in the form of lower explanatory power. We conclude that the distinct aspects of decentralisation should enter regression analyses separately, in the most flexible functional form possible. In particular, we find that revenue autonomy is virtually orthogonal to the subnational share of revenues and expenditures, suggesting that it carries additional information. In this chapter we show also how the conventional measures of decentralisation can be modified to account for the differing dependence on external grants.

Decentralizing Egypt: Not Just Another Economic Reform

In this paper we take stock of what the current system of sub-national governments is like in Egypt and then build on this assessment to suggest the form of decentralization that may be both effective and politically feasible. Practically every aspect of intergovernmental relations in Egypt seems to suffer from the lack of clarity and general vagueness. The all pervasive ambiguity is likely to be the outcome of an explicit policy design and has several main manifestations. A successful decentralization reform will require the political empowerment of local communities and this is a step that some in the current regime are unsure can be taken. At the same time there are others that feel that this is a step that the regime cannot afford not to take. Overall, there are reasons to be moderately optimistic about the prospects for fiscal decentralization reform, even if the obstacles remain formidable.