1. Intergovernmental Transfers
Professor Roy Bahl Georgia State University

2. Definitions
Why Use Transfers
How To Design A Transfer System
The Political Economy

3. Definitions Intergovernmental transfers Local taxes
Grants
Subsidies
Shared taxes
Local taxes
Piggyback local taxes

4. Definitions: Types of Intergovernmental Transfers
Unconditional or general
Conditional or specific (for capital and/or operating expenditures)
Non-matching
Matching
Open-ended
Close-ended
Direct cost reimbursement

5. Intergovernmental Transfers?
Why Have
Intergovernmental Transfers?

6. Justifications for Intergovernmental Transfers
Close the “fiscal gap”
Equalize fiscal capacity and need
Adjust for spillovers
Increase effectiveness of central expenditures
Political reasons

7. How To Close A Fiscal Gap
More Transfers
More Local Raised Revenue
Local Expenditure Efficiency
Re-Assign Expenditure / Responsibility

8. Equalization
The objective of an equalization transfer should be to protect (or guarantee?) some basic level of services

9. What Do We Equalize? Fiscal Capacity Expenditure Needs
Capacity – Needs Gap

10. The Special Case of Natural Resources Revenue Sharing

11. Natural Resource Revenue Sharing: The Case for More Centralization
The Stability Argument
The Disparities Argument
The Local Capacity Argument
The National Treasure Argument

12. Natural Resource Revenue Sharing: The Case for More Decentralization
The Cost Reimbursement Argument
The Heritage Argument
The Conflict Resolution Argument

13. Design Issues For Intergovernmental Transfers

14. How Can Intergovernmental Transfers be Decentralizing?
Revenue Adequacy
Certainty
Unconditional

15. How Can Intergovernmental Transfers be Centralizing?
No Transparency In Vertical Sharing
Ad Hoc Distributions
Uncertainty and Year-To-Year Changes
Strict Conditions

16. Alternative Forms of Intergovernmental Transfers

17. Goals of Central Government
Control Local Finances
Equalize Services and Fiscal Capabilities among Localities
Stimulate Expenditures for a Particular Function or Overall Tax Effort
Increase Local Tax Effort
Minimize Administrative Costs

18. Goals of Local Government
Maintain Control over Local Finances
Plan Efficient Budget
Increase Adequacy of Local Revenue Flow
Minimize Administrative Costs

19. Intergovernmental Grant Lessons
Desired outcomes should drive design
One grant/transfer instrument cannot accomplish multiple objectives
Expect changes over time
Is “distributable pool” a discretionary element in the central budget or an entitlement of local government?

20. Intergovernmental Grants: How Not To Do It!
Deficit Grants
Complicated Formulae
No Transparency
No Continuity
Base it on The Amount Spent
No Evaluation

21. The Special Problem of Transition
The Need for a Phase-In Plan
Separating the Pieces
The Learning Curve for Local Governments
Hold Harmless Provisions
Education
Implementation Planning
Central Leadership

22. The Political Economy of Transfers
President
Parliament
Ministry of Finance
MOHA
Line Ministries
Urban Local Government
Rural Local Government