Fiscal Decentralization and Links to Millennium Development Goals (MDGs)

Three Economic Roles of Government Equitable Distribution of Income Stable Economic Environment Efficient Allocation of Resources

Definitions Fiscal Decentralization refers to an intergovernmental system where the balance of power moves toward the subnational government sector Intergovernmental Fiscal Relations refers generally to division of fiscal powers and responsibilities among levels of government

Advantages of Fiscal Decentralization Move Government closer to the people Broaden the Tax Base Allow for alternative service delivery in social services

Components of system of fiscal decentralization Necessary Conditions Elected Local Council Locally Appointed Chief Officers Significant Local Government Revenue Capacity Significant Local Government Expenditure Responsibility Budget Autonomy Hard Budget Constraint Transparency

Components of System of Fiscal Decentralization Desirable Conditions Freedom from Excessive Central Expenditure Mandates Unconditional Transfers from Higher Level Governments Borrowing Powers

Obstacles to Fiscal Decentralization in CEE and CIS Countries Increase in Number of Local Units of Government Unfunded Mandates Failure to Devise Expenditure Assignment Too Few Tax Sources for Local Units Failure to Develop Credit and Borrowing System Financial Controls Retained by Central Level Lack of Intergovernmental Fiscal System based on Transparency Rather than Negotiation and Political Influence

Ukraine: Failure to Decentralize and Impact on Human Development in 1990s In comparison with other countries of the CEE, Ukraine did not achieve a high level of decentralization during 1990s For the decade as a whole, Ukraine shifted from 45 th to 80 th position out of 173 countries on the human development scale Romania and Poland, which were behind Ukraine at the beginning of the transition period had surpassed Ukraine by 1993 on the human development scale

Ukraine: (continued) Life expectancy decreased from 70.5 years to 67.9 years between 1990 and 2000 Per capita incomes dropped by 42% between 1992 and 2000 By 2001, 11% of the country’s population was suffering from extreme poverty, (less than 4.3 USD in purchasing power parity)

Ukraine: (continued) New cases of Tuberculosis per 100,000 people increased from 30 in 1990 to 69.5 in 2000 HIV infection now almost 1% of the adult population and faces crisis in next several years There is a growing disparity among the regions of Ukraine based on the Human Development Index

Adapting MDGs to Ukrainian Situation Eradicate Extreme Poverty and Hunger –To Reduce by half, between 2001 and 2015, the proportion of people whose income is less than 4.3 USD per day in PPP terms –To Reduce by one third, between 2001 and 2015, the proportion of the population, whose consumption is below the national poverty line –No target for hunger as this is not problem for Ukraine Achieve Universal Primary Education –Increase education enrollment during the period –Increase the quality of eduction Promote Gender Equality and Empower Women –To assure by 2015, at least 30-70% balance of each gender at top levels of the representative and executive power –To decrease by half, between 2001 and 2015, the gap between men’s and women’s incomes

Adapting MDGs to Ukrainian Situation (continued) Reduce Child Mortality –To Reduce by 17% the under-five mortality rate between 2001 and 2015 Improve Maternal Health –To Reduce by 17% maternal mortality, between 2001 and 2015 Combat HIV/AIDS, malaria and other diseases –To Decrease the expansion rate of new HIV/AIDS infections by 13% between 2001 and 2015 –To Reduce by 42% the spread of tuberculosis between 2001 and 2015

Adapting MDGs to Ukrainian Situation (continued) Ensure Environmental Sustainability –To Increase the share of population which has access to safe drinking water by 12% during the period –To Stabilize air pollution from both stationary and movable sources by 2015 –To Expand a network of natural reserves and national parks to 10.4% of total area of Ukraine Develop a Global Partnership for Development –World Trade Organization accession by 2004 –EU accession as a full or association member by 2015

Argentina: Decentralization and Human Development Period of political changes—dictatorship and democracy Analysis of Health and Education Indicators Positive Impact on Health and Education Indicators during periods of democratization and decentralization Inter-provincial disparities in education achievement declined significantly Infant mortality rate fell dramatically from 72 per 1000 in 1972 to 22.5 per 1000 in 1994 Decline in infant mortality accelerated even more after democracy established in 1984 Secondary enrolment per 1000 primary students increased more than 100% in 25 years

Columbia: The Impact of Municipal Decentralization Increase in social spending from 8% of GDP to 16.1% in due to priority begin given to education and health Education decentralization resulted in greater rate of literacy, more teachers, and higher levels of schooling Health service coverage increased from 35% of population in 1990 to 63% by end of decade Infant mortality reduced from 50 per 1000 in to 30 per 1000 in Increase of physicians per inhabitants from 1 physician per 1300 in 1985 to 1 physician per 1,000 in 1998

Columbia: (continued) Water supply system coverage reached a high of 89.2% of population Sewerage services reached 78.6% of the population