Podcast
Questions and Answers
What type of decentralization involves the full transfer of decision-making and funding powers to local governments?
What type of decentralization involves the full transfer of decision-making and funding powers to local governments?
Which of the following is NOT considered a challenge of decentralization?
Which of the following is NOT considered a challenge of decentralization?
What is the primary benefit of intermunicipal cooperation?
What is the primary benefit of intermunicipal cooperation?
Which form of administrative decentralization involves limited transfer within central government structures?
Which form of administrative decentralization involves limited transfer within central government structures?
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What does the Local Autonomy Index (LAI) measure?
What does the Local Autonomy Index (LAI) measure?
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Which of the following is a disadvantage of a single-tier municipal system?
Which of the following is a disadvantage of a single-tier municipal system?
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In a two-tier system, which is a primary advantage?
In a two-tier system, which is a primary advantage?
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Which indicator would be used to assess regional authority within decentralized governance?
Which indicator would be used to assess regional authority within decentralized governance?
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What is a Vertical Fiscal Imbalance primarily concerned with?
What is a Vertical Fiscal Imbalance primarily concerned with?
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What is one common method used to address Horizontal Fiscal Imbalance?
What is one common method used to address Horizontal Fiscal Imbalance?
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Which of the following is a challenge associated with conditional grants?
Which of the following is a challenge associated with conditional grants?
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What is considered economic infrastructure?
What is considered economic infrastructure?
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What funding method can be considered an innovative approach for smaller projects?
What funding method can be considered an innovative approach for smaller projects?
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Which challenge is commonly faced during Cost-Benefit Analysis (CBA) of infrastructure projects?
Which challenge is commonly faced during Cost-Benefit Analysis (CBA) of infrastructure projects?
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Which type of revenue is classified as 'Own-Source Revenues' for local governments?
Which type of revenue is classified as 'Own-Source Revenues' for local governments?
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What is an example of an external funding source for municipal infrastructure?
What is an example of an external funding source for municipal infrastructure?
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Why are property taxes considered ideal for local governments?
Why are property taxes considered ideal for local governments?
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Why is infrastructure often described as non-rival and non-excludable?
Why is infrastructure often described as non-rival and non-excludable?
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What is the primary challenge related to property tax assessment and collection?
What is the primary challenge related to property tax assessment and collection?
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What distinguishes general-purpose grants from specific-purpose grants in intergovernmental transfers?
What distinguishes general-purpose grants from specific-purpose grants in intergovernmental transfers?
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According to the traditional view of tax incidence, who primarily bears the burden of property taxes?
According to the traditional view of tax incidence, who primarily bears the burden of property taxes?
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What concept pertains to taxes being seen as user fees linked to services received?
What concept pertains to taxes being seen as user fees linked to services received?
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Which country is noted for relying heavily on property taxes as a source of revenue?
Which country is noted for relying heavily on property taxes as a source of revenue?
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What percentage of public debt do subnational governments typically hold in OECD countries after stricter fiscal rules?
What percentage of public debt do subnational governments typically hold in OECD countries after stricter fiscal rules?
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What is a significant challenge faced by local governments in balancing taxation and service delivery?
What is a significant challenge faced by local governments in balancing taxation and service delivery?
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Which of the following poses a challenge due to the expectation of central government bailouts?
Which of the following poses a challenge due to the expectation of central government bailouts?
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Why is the debt for subnational governments generally higher in federal countries than in unitary states?
Why is the debt for subnational governments generally higher in federal countries than in unitary states?
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What is the dominant form of financing for subnational government debt?
What is the dominant form of financing for subnational government debt?
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What role do intergovernmental transfers play in local government financing?
What role do intergovernmental transfers play in local government financing?
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Which financing instrument is emerging as a sustainable option for subnational governments despite challenges?
Which financing instrument is emerging as a sustainable option for subnational governments despite challenges?
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What must be balanced in financing instruments for local government projects?
What must be balanced in financing instruments for local government projects?
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Which challenge is posed by institutional deficiencies in subnational government debt?
Which challenge is posed by institutional deficiencies in subnational government debt?
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What is a primary concern regarding the relationship between local governments and central government debt assistance?
What is a primary concern regarding the relationship between local governments and central government debt assistance?
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Which type of budget primarily covers annual operational expenditures?
Which type of budget primarily covers annual operational expenditures?
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What is the goal of introducing fiscal rules in local government budgeting?
What is the goal of introducing fiscal rules in local government budgeting?
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What does participatory budgeting aim to achieve?
What does participatory budgeting aim to achieve?
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What approach integrates objectives of gender equality into budgeting processes?
What approach integrates objectives of gender equality into budgeting processes?
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Which budgeting type is focused on long-term projects often spanning five years?
Which budgeting type is focused on long-term projects often spanning five years?
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What is the primary focus of local governments according to fiscal federalism theory?
What is the primary focus of local governments according to fiscal federalism theory?
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What is the purpose of applying ratio analysis in assessing fiscal health?
What is the purpose of applying ratio analysis in assessing fiscal health?
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Which of the following services is considered a core responsibility of local governments?
Which of the following services is considered a core responsibility of local governments?
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What is one potential risk of limited fiscal autonomy for local governments?
What is one potential risk of limited fiscal autonomy for local governments?
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What trend is observed regarding municipal consolidation?
What trend is observed regarding municipal consolidation?
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How do local governments typically finance capital expenditures?
How do local governments typically finance capital expenditures?
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What is a characteristic of noncore responsibilities in local government?
What is a characteristic of noncore responsibilities in local government?
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Which of these countries reflects varying municipal sizes and approaches to local governance?
Which of these countries reflects varying municipal sizes and approaches to local governance?
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What is a common outcome of more decentralized systems?
What is a common outcome of more decentralized systems?
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Which of the following best describes local preferences in government services?
Which of the following best describes local preferences in government services?
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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.
Global Property Tax Trends
- 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
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Subnational government (SNG) debt includes loans, deposits, and debt securities.
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Stricter fiscal rules after crises (e.g., 2008 financial crisis, COVID-19).
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Debt is typically concentrated at national level and public debt in OECD countries accounts for about 16%.
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Challenges of SNG Debt include (but are not limited to):
- Soft budget constraints (expectation of central government bailouts).
- Institutional deficiencies (limited fiscal capacity).
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Solutions for excessive debt:
- Ensure budgetary institutions are strong and aligned with fiscal responsibility.
- Enforce fiscal discipline.
- Set clear debt reduction goals.
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Municipal budget types include operating and capital budgets.
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Fiscal rules often include balanced budgets for operations with allowances for capital investments.
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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.
