Shyam Nath

Public expenditure decentralization in developing countries

The objective of this paper is to investigate the extent of public expenditure decentralization among developing countries, and to identify its determinants. Using data compiled from international agency sources, and from primary sources, it is shown that fiscal decentralization has gone significantly farther in developed than in developing countries. The use of factor analysis and regression analysis indicates three general explanations for the wide variation in fiscal decentralization among countries. The public expenditure share of subnational governments appears to be greater where the level of economic development is higher, in countries with larger populations, and in countries whose central government budgets carry less of a defense burden. The results also suggest that where central governments mobilize more resources through the revenue system, the subnational governments share of expenditures may be lower—taxes are more likely to stick where they hit than to be passed through as grants to local governments.

Bargaining, coalitions and local expenditure

We extend the literature on local expenditure determination by showing that bargaining and grand coalition seem to facilitate collective decision-making in an assembly of elected councillors. We demonstrate that the solution of the game turns on the principle of equal relative concession. Based on limited experimentation, we assess the performance of local governments and find that group dominance frustrates local expenditure efficiency in urban localities of India.

Beneficiary charges: The Cinderella of subnational finance

The revenue objective to cover the identifiable costs (in full or partly) is important with respect to both fees and charges. All revenue sources -- taxes, fees, fines and user charges -- are instruments of cost recovery to meet the financial obligations of public administration and the public and private supply of public goods and services. In the case of publicly supplied local goods, such as public administration, public education, health services, street lighting and sanitation, cost recovery may not be the dominant objective. But cost recovery is tremendously significant in the case of privately supplied local public goods, such as water supply, sewerage, electricity and telephone. In recent years, user fees and charges have gained significance at the sub-national level mainly because of hard local budget constraints. Recession resulted in drastic cuts in intergovernmental transfers and reduced access to market loans. According to the 2009 International City and County Management (ICMA) State Survey in the US, for instance, 46 percent of reporting local governments increased existing fees by 23 percent and added new levies for additional funds (Ebel and Petersen, 2012). While these trends are encouraging, there is no systematic research to assess the efficacy of local government in collecting fees and user charges vis-a-vis performance of other institutional arrangements such as off- budget supply and privatization. The structure of this paper is as follows. Section 2 discusses the principles and practices of user fees and charges and their revenue potential. Section 3 analyzes factors adversely impacting the growth of beneficiary charges in local government budgets, including the centralization of revenue, intergovernmental fiscal transfers, and alternative fiscal strategies such as tax earmarking and piggybacking. Section 4 examines the trade-off between budgetary and privatization regimes of water supply and the efficacy of cost recovery policies. Section 5 examines the implications of water utility policies for full and partial cost recovery vis-a-vis the marginal cost of public funds. This section also includes an analysis of the impact of willingness to pay for water on the marginal cost of public funds. An empirical analysis is carried out using the results of a contingent valuation survey in Mauritius and estimating an empirical model for measuring the welfare effects of water charges in terms of the willingness to pay and the cost of providing water. When willingness to pay exceeds the average cost of supplying water, the marginal cost of public funds is reduced, thus increasing the revenue potential of water charges. The last section concludes with policy implications.

GEOGRAPHY, MACROECONOMIC VULNERABILITY AND ECONOMIC PERFORMANCE

The objective of the paper is to empirically examine the effects of macroeconomic volatility on growth and other indicators of welfare incorporating more particularly geography produced diverse conditions that are either growth promoting or growth hampering. We extend the literature on macroeconomic volatility, growth and welfare by integrating the macroeconomics and new development economics literature on cross-country growth performance by capturing factors beyond neoclassical and new growth approaches. Empirical results confirm that growth outcomes under different geography-produced favorable and adverse conditions have the potential of minimizing and exacerbating the effects of macroeconomic variability. The significance of geography and its links with institutions is highlighted and adverse growth and welfare effects of income inequality, coastal openness and trade openness are analyzed.

Globalization, Sub-national Governments and Urban Crises in the Developing World

This chapter highlights an inherent and serious contradiction that the gathering momentum of globalization has unleashed for many nations in the developing world. On the one hand, these nations have witnessed significant acceleration in their GDP growth in recent years, which induced rapid increases in the pace of urbanization and urban population growth. On the other hand, governments at regional levels have accumulated huge debts owing to privatization and sales of state-owned enterprises and assets, declining fiscal revenues, unsuccessful reforms, corruption and inappropriate accounting practices. Many regional governments in these countries are finding it difficult to service their debts, which force them to impose austere fiscal measures. This has an adverse impact on the provision of local goods and infrastructure in the urban areas. In most of the developing world there has emerged a widening gap between demand for and supply of local goods and infrastructure in urban areas, e.g., urban water supply, roads, basic public health facilities, primary schooling, housing and so on. This is despite the fact that large cities, which are the focus of globalization, accumulate urban wealth and business infrastructure. Richardson (2004) discusses the implications of globalization for cities at the receiving end. His findings are that large cities, on balance, benefit from globalization even in developing countries, although in some cases at the expense of widening regional disparities.

Foreign aid and donor's trade gains

This paper shows that the impact of foreign aid on recipient output and donors trade gains are greater when aid is utilized as intended by the donor than when foreign funds are funged in the form of tax relief. A lower impact of fungibility on output is caused by the fact that the multiplier effect is reduced when spending units are consumers because the latter save a part of the additional disposable income obtained from tax relief, whereas the government spends the entire aid amount.