Framework for Expenditure Assignment Decentralization and Intergovernmental Fiscal Reform 24 March 2003 Dana Weist PRMPS

Design Determines Impact Expenditures = government services Design affects availability, quality, access and appropriate use of public services e.g. health, education, water, roads etc. Can ultimately affect macroeconomic stability

Macroeconomic Stability Key factor is “ hard budget constraint ” Creates incentives for subnational fiscal discipline Limits risk of central government Can be “ softened ” through several channels (intergovernmental fiscal system, financial system, SOEs etc.)

Equity Extent of fiscal equalization Ways and means for targeting poor places and poor people

Efficiency Considerations for assignment: public goods, externalities, subsidiarity, economies of scale, public sector competition Do local services respond to local needs? –Do citizens have meaningful opportunities for voice? –Do officials face incentives to respond?

Common Problems Unclear delineation between public and private sectors Lack of formal assignment Concurrent assignment among levels of government No mechanisms for coordination and conflict resolution Inefficient assignments

Decentralization of Functions Organization Planning Personnel Infrastructure Resources Regulation

Poverty Reduction Strategies Elements of a successful anti-poverty strategy Identify the poor Understand reasons and factors that lead to poverty Design a set of policies (e.g. PRS) Cost-effective implementation Fiscal decentralization as a key to policy design and effectiveness

Poverty Reduction Strategy (PRS) Proximity to target group Identify beneficiaries and willingness to pay Distribution policy becomes intergovernmental Economies of place

Poverty Reduction Roles Policy interventions in a unitary system Multi-level fiscal systems Fiscal decentralization and service delivery Intergovernmental transfers Local participation and accountability

Key Points Ultimately, no single best assignment Ideally, services should be provided at lowest level of government where benefits lie Public provision doesn ’ t imply public production Clarity is critically important