Symposium on Fiscal Decentralization
Grewal, Bhajan S., Public Finance and Management
Recent years have witnessed an unmistakable rise in interest in fiscal decentralization. At the same time, fiscal decentralization remains controversial and, in the absence of a generally accepted standard definition, is open to multiple interpretations and connotations. Benefits of fiscal decentralization are also disputed by some. Against this background, this special symposium on fiscal decentralization is being published with a view to shedding light on some of the major theoretical and empirical aspects of fiscal decentralization.
Interest in fiscal decentralization has been rising in recent years, both within the formally federalized countries and outside - e.g. in the former Soviet Union States and the East European emerging economies. International organizations, including the World Bank, the Asian Development Bank, the Organisation for Economic Co-operation and Development and the Inter-American Development Bank have also been encouraging the member countries to embrace fiscal decentralization as part of their broader strategies for enhancing efficiency of the public sector and for strengthening participatory decision-making at local government levels. In the European Union (EU), where the member countries are on the one hand, moving towards a federal-type constitution, they have also been concerned, on the other hand, to ensure that the proposed EU constitutional treaty does not threaten fiscal autonomy of their national governments. They fear that the law of subsidiarity may be in danger of being uprooted by the concentration of power in Brussels.
In spite of its widening appeal, fiscal decentralization remains controversial and, in the absence of a standard definition, is open to multiple interpretations and connotations. Skeptics argue, for example, that levels of government that are the closest to people are not always the most efficient for providing public goods, and that local governments often fall prey to capture and corruption by vested interests. Quantitative studies on statistical correlation between fiscal decentralization and economic growth remain ambivalent about the longer-term efficiency benefits of fiscal decentralization. By virtue of these issues, fiscal decentralization has become, on the one hand, a difficult issue for the policy-makers to handle and, on the other hand, a new challenge for academic researchers, because of the multitude of issues that require better understanding and resolution.
It is against this background that I suggested to the Editor of Public Finance and Management, Professor Peter van der Hoek, to consider publishing a special symposium on fiscal decentralization. His enthusiastic response included an invitation for me to edit this symposium. The papers published in this volume of Public Finance and Management are the final product of that initiative. I would like to express my thanks to Professor Peter van der Hoek for entrusting to me the task of editing this special symposium and to all authors for their excellent contributions. The assistance received from a number of anonymous referees in reviewing all papers is also gratefully acknowledged. Whilst it has not been possible to cover all major controversies surrounding fiscal decentralization, it is hoped that these five papers would make a worthwhile contribution by adding greater clarity to the issues covered in them.
In the first paper, Jorge Martinez-Vazquez and Andrey Timofeev (MVT) address the basic question: how should fiscal decentralization be defined? It is obvious that decentralization is a multifaceted process, encompassing, on the one hand, the scope of authority, and on the other hand, multiple channels or dimensions along which authority may be decentralized. For example, decentralization may occur through non-fiscal powers or fiscal powers. For example, when decentralization occurs through "devolution", subnational governments exercise authority along all the three dimensions of governance (i. …