Decentralization Overview
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Questions and Answers

What type of decentralization involves the full transfer of decision-making and funding powers to local governments?

  • Delegation
  • Deconcentration
  • Devolution (correct)
  • Centralization

Which of the following is NOT considered a challenge of decentralization?

  • Enhanced local efficiency (correct)
  • Regional service disparities
  • Resource imbalances
  • Elite capture

What is the primary benefit of intermunicipal cooperation?

  • Reduction in local authority autonomy
  • Cost-sharing for services (correct)
  • Enhanced service delivery without conflicts
  • Increased competition among municipalities

Which form of administrative decentralization involves limited transfer within central government structures?

<p>Deconcentration (A)</p> Signup and view all the answers

What does the Local Autonomy Index (LAI) measure?

<p>The effectiveness of decentralization (C)</p> Signup and view all the answers

Which of the following is a disadvantage of a single-tier municipal system?

<p>Challenges with accessibility in larger regions (B)</p> Signup and view all the answers

In a two-tier system, which is a primary advantage?

<p>Efficiency through shared responsibilities (B)</p> Signup and view all the answers

Which indicator would be used to assess regional authority within decentralized governance?

<p>Regional Authority Index (D)</p> Signup and view all the answers

What is a Vertical Fiscal Imbalance primarily concerned with?

<p>Local revenues being insufficient to meet responsibilities (A)</p> Signup and view all the answers

What is one common method used to address Horizontal Fiscal Imbalance?

<p>Equalization grants (C)</p> Signup and view all the answers

Which of the following is a challenge associated with conditional grants?

<p>They can distort local priorities (C)</p> Signup and view all the answers

What is considered economic infrastructure?

<p>Roads and utilities (D)</p> Signup and view all the answers

What funding method can be considered an innovative approach for smaller projects?

<p>Crowdfunding (A)</p> Signup and view all the answers

Which challenge is commonly faced during Cost-Benefit Analysis (CBA) of infrastructure projects?

<p>Valuing intangible benefits (A)</p> Signup and view all the answers

Which type of revenue is classified as 'Own-Source Revenues' for local governments?

<p>Property taxes and investment income (A)</p> Signup and view all the answers

What is an example of an external funding source for municipal infrastructure?

<p>Bonds (D)</p> Signup and view all the answers

Why are property taxes considered ideal for local governments?

<p>They provide a stable revenue source linked to local benefits (C)</p> Signup and view all the answers

Why is infrastructure often described as non-rival and non-excludable?

<p>Multiple people can benefit from it without reducing its availability (A)</p> Signup and view all the answers

What is the primary challenge related to property tax assessment and collection?

<p>Ensuring that property taxes are applied uniformly and fairly (D)</p> Signup and view all the answers

What distinguishes general-purpose grants from specific-purpose grants in intergovernmental transfers?

<p>General-purpose grants allow for broader local government initiative funding (B)</p> Signup and view all the answers

According to the traditional view of tax incidence, who primarily bears the burden of property taxes?

<p>Residents in the jurisdiction (B)</p> Signup and view all the answers

What concept pertains to taxes being seen as user fees linked to services received?

<p>Benefit View (D)</p> Signup and view all the answers

Which country is noted for relying heavily on property taxes as a source of revenue?

<p>United Kingdom (D)</p> Signup and view all the answers

What percentage of public debt do subnational governments typically hold in OECD countries after stricter fiscal rules?

<p>16% (A)</p> Signup and view all the answers

What is a significant challenge faced by local governments in balancing taxation and service delivery?

<p>Managing equitable taxation alongside efficient service delivery (A)</p> Signup and view all the answers

Which of the following poses a challenge due to the expectation of central government bailouts?

<p>Soft budget constraints (C)</p> Signup and view all the answers

Why is the debt for subnational governments generally higher in federal countries than in unitary states?

<p>More decentralized fiscal responsibilities (C)</p> Signup and view all the answers

What is the dominant form of financing for subnational government debt?

<p>Loans (C)</p> Signup and view all the answers

What role do intergovernmental transfers play in local government financing?

<p>They increase local governments' debts relative to revenues. (B)</p> Signup and view all the answers

Which financing instrument is emerging as a sustainable option for subnational governments despite challenges?

<p>Green bonds (D)</p> Signup and view all the answers

What must be balanced in financing instruments for local government projects?

<p>Efficiency, equity, and long-term viability (B)</p> Signup and view all the answers

Which challenge is posed by institutional deficiencies in subnational government debt?

<p>Reduced access to capital markets (D)</p> Signup and view all the answers

What is a primary concern regarding the relationship between local governments and central government debt assistance?

<p>Local governments may become overly reliant on central government support. (A)</p> Signup and view all the answers

Which type of budget primarily covers annual operational expenditures?

<p>Operational Budget (B)</p> Signup and view all the answers

What is the goal of introducing fiscal rules in local government budgeting?

<p>To enforce balanced budgets while allowing deficits for capital projects. (D)</p> Signup and view all the answers

What does participatory budgeting aim to achieve?

<p>Enhance transparency and involvement of citizens in budget formulation. (C)</p> Signup and view all the answers

What approach integrates objectives of gender equality into budgeting processes?

<p>Gender Budgeting (A)</p> Signup and view all the answers

Which budgeting type is focused on long-term projects often spanning five years?

<p>Capital Budget (D)</p> Signup and view all the answers

What is the primary focus of local governments according to fiscal federalism theory?

<p>Broad-based programs with minimal externalities (D)</p> Signup and view all the answers

What is the purpose of applying ratio analysis in assessing fiscal health?

<p>To determine the efficiency and solvency of a government's finances. (A)</p> Signup and view all the answers

Which of the following services is considered a core responsibility of local governments?

<p>Public safety (C)</p> Signup and view all the answers

What is one potential risk of limited fiscal autonomy for local governments?

<p>Higher likelihood of incurring debt to service essential services. (B)</p> Signup and view all the answers

What trend is observed regarding municipal consolidation?

<p>It is common to achieve cost savings (A)</p> Signup and view all the answers

How do local governments typically finance capital expenditures?

<p>Via reserves, grants, developer contributions, and debt (C)</p> Signup and view all the answers

What is a characteristic of noncore responsibilities in local government?

<p>They often involve shared responsibilities with higher levels of government (D)</p> Signup and view all the answers

Which of these countries reflects varying municipal sizes and approaches to local governance?

<p>Denmark and Slovakia (C)</p> Signup and view all the answers

What is a common outcome of more decentralized systems?

<p>They correlate with wealthier countries (B)</p> Signup and view all the answers

Which of the following best describes local preferences in government services?

<p>Tailored solutions through smaller units (A)</p> Signup and view all the answers

Flashcards

Decentralization

Transferring powers and responsibilities from central to subnational government levels.

Fiscal Decentralization

Giving subnational governments the authority to raise and spend their own revenue.

Political Decentralization

Giving subnational governments the authority to make their own political decisions, like electing representatives.

Administrative Decentralization

Delegating government responsibilities to lower levels, with different approaches like deconcentration, delegation, and devolution.

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Deconcentration

Shifting responsibilities within the central government structure to lower offices.

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Delegation

Transferring responsibilities to subnational governments or authorities while maintaining central control.

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Devolution

Fully handing over decision-making and funding powers to local governments.

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Single-Tier Municipal Structure

A system where one single authority manages all local services.

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Own-Source Revenues

Money generated by a local government directly from its residents, such as property taxes, fees, and charges.

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Intergovernmental Transfers

Financial aid received by local governments from higher levels of government, like states or the federal government.

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Property Taxes

A primary source of local government income, levied on the value of real estate owned by individuals and businesses.

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Assessment Methods

Different ways to determine the value of a property for tax purposes, including considering market sales, construction costs, or income potential.

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Types of Grants

Categorization of government funding based on its purpose and conditions.

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General-Purpose Grants

Government funds with no specific instructions, providing flexibility to local governments to use them as needed.

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Specific-Purpose Grants

Government funding allocated for a particular purpose, often with conditions or required outcomes.

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Fiscal Autonomy

The ability of local governments to control their own finances, including spending and taxation.

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Operating Budget

The budget covering the day-to-day expenses of local governments, such as salaries, maintenance, and utilities.

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Capital Budget

A budget that allocates funds for long-term investments and infrastructure projects, often spanning several years.

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Golden Rule (Fiscal)

A rule that requires local governments to balance their operating budgets while allowing deficits for investments in capital projects.

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Participatory Budgeting

A budgeting process where citizens directly participate in deciding how local government funds are allocated.

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Gender Budgeting

A budgeting approach that aims to promote gender equality by allocating resources specifically to address disparities faced by women and girls.

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Green Budgeting

A budgeting process that aligns fiscal policies with environmental and climate sustainability goals.

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Vertical Fiscal Imbalance

When local governments lack enough revenue to meet their responsibilities.

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Horizontal Fiscal Imbalance

Unequal resources and service needs between local governments.

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Equalization Grants

Financial aid to address horizontal fiscal imbalance, helping poorer or less developed local governments.

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Conditional Grants

Grants with specific requirements for how the money must be used by local governments.

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Public Infrastructure

Public services essential for economic and social well-being.

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Cost-Benefit Analysis (CBA)

Evaluating infrastructure projects by comparing potential benefits and costs.

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Tax Increment Financing (TIF)

Using increased property taxes from development to finance infrastructure.

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Public-Private Partnerships (PPPs)

Collaboration between public and private sectors to build and manage infrastructure.

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Subnational Government Debt (SNG Debt)

Liabilities accumulated by local governments, including loans, deposits, and debt securities.

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Impact of Fiscal Crises on SNG Debt

After crises like the 2008 financial crisis and COVID-19, stricter fiscal rules have limited SNG debt, reducing it to an average of 16% of public debt in OECD countries.

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Distribution of Public Debt

Most public debt is held at the national level, while local governments hold only a small portion (6%).

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SNG Debt in Federal vs. Unitary States

SNG debt tends to be higher in federal countries (e.g., Canada, US) compared to unitary states.

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SNG Debt Drivers

Limited taxing powers and reliance on intergovernmental transfers contribute to high SNG debt relative to their revenues.

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SNG Debt Financing Instruments

Loans are the most common (53%), followed by accounts payable and bonds. Green bonds are a growing alternative but face challenges.

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Soft Budget Constraints in SNG Debt

The expectation of central government bailouts can lead to excessive deficits and moral hazard in local government spending.

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Institutional Deficiencies and SNG Debt

Limited fiscal capacity and creditworthiness in local governments can worsen their borrowing difficulties.

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Fiscal Federalism Theory

This theory suggests that local governments should focus on providing services with few spillover effects to other areas and with opportunities for cost savings through economies of scale, such as local public goods like roads and police.

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Core Local Government Responsibilities

These involve services primarily benefiting a specific locality, with limited impacts on other areas, encompassing public safety, environmental services, and general administration.

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Noncore Local Government Responsibilities

These encompass services with a wider reach and potentially higher costs, often shared with higher levels of government, including education, healthcare, and social assistance.

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Schooling Funding Models

Different countries employ various approaches to funding education, ranging from central financing (France) to locally financed systems (Sweden, Denmark).

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Healthcare Responsibilities

The role of local governments in healthcare varies globally, with national programs often taking the lead, but some decentralized involvement exists (e.g., US, Scandinavian countries).

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Local Government Financing of Capital Expenditures

Local governments utilize various sources to fund capital projects, including reserves, grants, contributions from developers, and debt.

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Subnational Government Spending

The proportion of spending by subnational governments (regions, states, counties) varies globally, with education and healthcare typically representing substantial portions.

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Decentralization and Wealth

Wealthier countries often exhibit more decentralized governance systems, although spending responsibility doesn't always translate to complete local autonomy.

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Study Notes

Decentralization

  • Decentralization is the transfer of powers and responsibilities from central to subnational levels of government.
  • Types include fiscal, political, administrative, and market decentralization.
  • Forms of administrative decentralization:
    • Deconcentration: Limited transfer within central government structures.
    • Delegation: Shifting responsibilities to subnational governments under central control.
    • Devolution: Full transfer of decision-making and funding powers to local governments.
  • Advantages of decentralization:
    • Enhances local efficiency by tailoring services to local needs.
    • Promotes political participation and accountability.
    • Encourages innovation via "laboratory federalism."
  • Challenges of decentralization:
    • Resource imbalances and fiscal limitations.
    • Risk of elite capture, especially in developing nations.
    • Disparities between regions in service provision and capacity.
  • Ideal decentralization:
    • Matches local government boundaries with service beneficiaries.
    • Balances expenditure decentralization with revenue autonomy.
  • Indicators and models for measuring decentralization:
    • Tools like the Local Autonomy Index (LAI) and Regional Authority Index.
    • Models range from fully centralized to decentralized, with varying degrees of fiscal and administrative autonomy.

Structural Design

  • Municipal structures include single-tier, two-tier, and intermunicipal agreements or service boards.
  • Single-tier systems manage all services under one authority, while two-tier systems split responsibilities between local and regional levels.

Local Government Expenditures

  • Local governments should focus on programs with limited externalities and economies of scale.
  • Examples include local public goods (roads, policing).

Core vs. Non-Core Responsibilities

  • Core responsibilities : services with minimal interjurisdictional spillovers.
  • Non-core responsibilities: more expensive and broader in scope, often involving shared responsibilities with higher levels of government.

Schooling and Healthcare

  • Schooling is typically a shared responsibility, with varying models from central to local financing.
  • Healthcare responsibilities vary globally, with some centralized national programs and some decentralized involvement.

Local Government Expenditures

  • Local governments finance capital expenditures through reserves, grants, developer contributions, and debt.
  • The proportion of subnational government (SNG) expenditure varies, with education and healthcare being significant areas globally.
  • Spending responsibility doesn't always equate to decentralization autonomy, often found in wealthier countries.

Local Government Revenues

  • Revenue sources:
    • Local taxes (property taxes, charges).
    • Intergovernmental transfers (grants, shared revenues).
  • Property taxes:
    • Seen as an ideal local tax.
    • Assessment methods include value-based (sales, cost, or income), area-based, and self-assessments.
  • Assessment and collection:
    • Property identification, valuation, tax rate setting, and collection are core steps.

Theories of Tax Incidence

  • Traditional View: Taxes are proportional or regressive, borne by residents.
  • Capital View: Taxes as a capital levy, progressive in nature.
  • Benefit View: Taxes as user fees, linked to services received.
  • Wide variation in property tax contributions to total revenue globally.
  • Some countries (e.g., US, UK, Canada) rely more on property taxes than others (e.g., Hungary, Mexico).

Intergovernmental Transfers

  • Types of grants:
    • General-purpose (unconditional): maximum flexibility for local governments.
    • Specific-purpose (conditional): targeted funds with conditions (input or output-based; matching).
  • Key concepts:
    • Vertical Fiscal Imbalance: local revenues insufficient for responsibilities.
    • Horizontal Fiscal Imbalance: addressed by equalization grants.
  • Grant objectives:
    • Address fiscal imbalances.
    • Set national standards.
    • Promote competition.
    • Rectify externalities through conditional matching grants.

Finance of Municipal Infrastructure

  • Public infrastructure comprises economic (roads, utilities) and social (schools, hospitals) infrastructure.
  • Infrastructure is typically non-rival and non-excludable.
  • Benefits include economic growth and improved quality of life.
  • Funding methods include internal sources (operating, reserves, charges), external sources (grants, PPPs, bonds), and innovative methods (crowdfunding).
  • Cost-benefit analysis (CBA) is used to evaluate projects, addressing tangible and intangible benefits & costs.

Local Government Debt and Budgeting

  • Subnational government (SNG) debt includes loans, deposits, and debt securities.

  • Stricter fiscal rules after crises (e.g., 2008 financial crisis, COVID-19).

  • Debt is typically concentrated at national level and public debt in OECD countries accounts for about 16%.

  • Challenges of SNG Debt include (but are not limited to):

    • Soft budget constraints (expectation of central government bailouts).
    • Institutional deficiencies (limited fiscal capacity).

  • Solutions for excessive debt:

    • Ensure budgetary institutions are strong and aligned with fiscal responsibility.
    • Enforce fiscal discipline.
    • Set clear debt reduction goals.

  • Municipal budget types include operating and capital budgets.

  • Fiscal rules often include balanced budgets for operations with allowances for capital investments.

  • Participatory budgeting involves citizens in budget formulation.

Specialized Budgeting

  • Approaches like gender and green budgeting integrate specific policy goals into the budget.
  • Gender budgeting integrates gender equality objectives.
  • Green budgeting emphasizes environmental and climate concerns..

Assessing Fiscal Health

  • Key metrics include ratios (debt-to-assets, efficiency) and solvency tests.
  • Brown’s Ten-Point Test offers a simplified solvency analysis across multiple dimensions.

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Description

This quiz covers the concept of decentralization, detailing its types, advantages, and challenges. Learn about the differences between deconcentration, delegation, and devolution, as well as the implications for local governance and service efficiency.

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