1932

Abstract

Standard models of fiscal federalism suggest many benefits of decentralization in developing economies, and there has been a recent push toward decentralization around the world. However, developing countries presently still have less decentralization, particularly on the revenue side, than both developed countries today and the United States and Europe historically. We consider how the trade-offs associated with fiscal federalism apply in developing countries and discuss reasons for their relatively low levels of decentralization. We also consider additional features relevant to federalism in developing economies, such as the prevalence of nongovernmental organizations and the role of social incentives in policy design.

Loading

Article metrics loading...

/content/journals/10.1146/annurev-economics-080213-040833
2014-08-02
2024-04-25
Loading full text...

Full text loading...

/deliver/fulltext/economics/6/1/annurev-economics-080213-040833.html?itemId=/content/journals/10.1146/annurev-economics-080213-040833&mimeType=html&fmt=ahah

Literature Cited

  1. Acemoglu D, Johnson S, Robinson JA. 2001. The colonial origins of comparative development: an empirical investigation. Am. Econ. Rev. 91:1369–401 [Google Scholar]
  2. Alatas V, Banerjee A, Chandrasekhar AG, Hanna R, Olken BA et al. 2013. Does elite capture matter? Local elites and targeted welfare programs in Indonesia. NBER Work. Pap. 18798
  3. Alatas V, Banerjee A, Hanna R, Olken BA, Tobias J. 2012. Targeting the poor: evidence from a field experiment in Indonesia. Am. Econ. Rev. 102:1206–40 [Google Scholar]
  4. Alderman H. 2002. Do local officials know something we don't? Decentralization of targeted transfers in Albania. J. Public Econ. 83:375–404 [Google Scholar]
  5. Alesina A, La Ferrara E. 2005. Preferences for redistribution in the land of opportunities. J. Public Econ. 89:897–931 [Google Scholar]
  6. Ashraf N, Bandiera O, Jack K. 2014. No margin, no mission? A field experiment on incentives for public service delivery. Work. Pap., Harvard Bus. Sch., Boston, MA
  7. Bagchi AK. 1988. Colonialism and the nature of ‘capitalist’ enterprise in India. Econ. Polit. Wkly. 23:PE38–50 [Google Scholar]
  8. Bahl R, Bird R. 2008. Subnational taxes in developing countries: the way forward. Public Budg. Finance 28:1–25 [Google Scholar]
  9. Baicker K, Clemens J, Singhal M. 2012. The rise of the states: U.S. fiscal decentralization in the postwar period. J. Public Econ. 96:1079–91 [Google Scholar]
  10. Banerjee A, Banerji R, Duflo E, Glennerster R, Khemani S. 2010. Pitfalls of participatory programs: evidence from a randomized evaluation in education in India. Am. Econ. J. Econ. Policy 2:1–30 [Google Scholar]
  11. Banerjee A, Duflo E. 2006. Addressing absence. J. Econ. Perspect. 20:117–32 [Google Scholar]
  12. Banerjee A, Hanna R, Mullainathan S. 2012. Corruption. The Handbook of Organizational Economics Gibbons R, Roberts J. 1109–47 Princeton, NJ: Princeton Univ. Press [Google Scholar]
  13. Banerjee A, Iyer L. 2005. History, institutions and economic performance: the legacy of colonial land tenure systems in India. Am. Econ. Rev. 95:1190–213 [Google Scholar]
  14. Banerjee A, Pande R. 2009. Parochial politics: ethnic preferences and politician corruption. Discuss. Pap. 6381, Cent. Econ. Policy Res., London
  15. Bardhan P. 2002. Decentralization of governance and development. J. Econ. Perspect. 16:185–205 [Google Scholar]
  16. Bardhan P, Mookherjee D. 2005. Decentralizing antipoverty program delivery in developing countries. J. Public Econ. 89:675–704 [Google Scholar]
  17. Bardhan P, Mookherjee D. 2006. Decentralization and accountability in infrastructure delivery in developing countries. Econ. J. 116:101–27 [Google Scholar]
  18. Barr A, Fafchamps M, Owens T. 2005. The governance of non-governmental organizations in Uganda. World Dev. 33:657–79 [Google Scholar]
  19. Benabou R, Tirole J. 2003. Intrinsic and extrinsic motivation. Rev. Econ. Stud. 70:489–520 [Google Scholar]
  20. Besley T, Burgess R. 2002. The political economy of government responsiveness: theory and evidence from India. Q. J. Econ. 117:1415–51 [Google Scholar]
  21. Besley T, Case A. 1995. Incumbent behavior: vote-seeking, tax-setting, and yardstick competition. Am. Econ. Rev. 85:25–45 [Google Scholar]
  22. Besley T, Coate S. 2003. Centralized versus decentralized provision of local public goods: a political economy approach. J. Public Econ. 87:2611–37 [Google Scholar]
  23. Besley T, Ghatak M. 2001. Government versus private ownership of public goods. Q. J. Econ. 116:1343–72 [Google Scholar]
  24. Besley T, Ghatak M. 2005. Competition and incentives with motivated agents. Am. Econ. Rev. 95:616–36 [Google Scholar]
  25. Besley T, Ghatak M. 2008. Status incentives. Am. Econ. Rev. 98:206–11 [Google Scholar]
  26. Besley T, Pande R, Rao V. 2012. Just reward? Local politics and public resource allocation in South India. World Bank Econ. Rev. 26:191–216 [Google Scholar]
  27. Besley T, Persson T. 2013. Taxation and development. Handbook of Public Economics Vol. 5 Auerbach AJ, Chetty R, Feldstein M, Saez E. 51–110 Amsterdam North-Holland: [Google Scholar]
  28. Bird RM. 2011. Subnational taxation in developing countries: a review of the literature. J. Int. Commerce Econ. Policy 2:139–61 [Google Scholar]
  29. Bird RM, Smart M. 2002. Intergovernmental fiscal transfers: international lessons for developing countries. World Dev. 30:899–912 [Google Scholar]
  30. Bjorkman M, Svensson J. 2009. Power to the people: evidence from a randomized field experiment of a community-based monitoring project in Uganda. Q. J. Econ. 124:735–69 [Google Scholar]
  31. Brennan G, Buchanan JM. 1980. The Power to Tax: Analytical Foundations of a Fiscal Constitution Cambridge, UK: Cambridge Univ. Press
  32. Brollo F, Nannicini T, Perotti R, Tabellini G. 2013. The political resource curse. NBER Work. Pap. 15705
  33. Burgess R, Stern N. 1993. Taxation and development. J. Econ. Lit. 31:762–830 [Google Scholar]
  34. Cage J, Gadenne L. 2014. Tax revenues, development, and the fiscal cost of trade liberalization, 1792–2006. Work. Pap., Univ. Coll. London
  35. Chattopadhyay R, Duflo E, Fischer G. 2005. Efficiency and rent seeking in local government: evidence from randomized policy experiments in India. Work. Pap., Mass. Inst. Technol., Cambridge, MA
  36. Coquery-Vidrovitch C. 1998. Le régime fiscal dans les colonies françaises, 1900–1960. In La France et l’outre-mer, un siècle de relations monétaires et financières, pp. 109–32. Paris: Com. Hist. Econ. Financ. Fr
  37. De Mello LR. 2000. Fiscal decentralization and intergovernmental fiscal relations: a cross-country analysis. World Dev. 28:365–80 [Google Scholar]
  38. Del Carpio L. 2013. Are the neighbors cheating? Evidence from a social norm experiment on property taxes in Peru. Work. Pap., Princeton Univ., Princeton, NJ
  39. Dziobek C, Mangas CG, Kufa P. 2011. Measuring fiscal decentralization: exploring the IMF’s databases. Work. Pap. 11/126, Int. Monet. Fund, Washington, DC
  40. Ebel RD, Taliercio R. 2005. Subnational tax policy and administration in developing economies. Tax Notes Int. 37:919–36 [Google Scholar]
  41. Fabricant S, Lipsey RE. 1952. The Trend of Government Activity in the United States Since 1900 New York: Natl. Bur. Econ. Res
  42. Faguet JP. 2004. Does decentralization increase government responsiveness to local needs? Evidence from Bolivia. J. Public Econ. 88:867–93 [Google Scholar]
  43. Faguet JP. 2008. Decentralisation's effects on public investment: evidence and policy lessons from Bolivia and Colombia. J. Dev. Stud. 44:1100–21 [Google Scholar]
  44. Ferraz C, Finan F. 2008. Exposing corrupt politicians: the effects of Brazil's publicly released audits on electoral outcomes. Q. J. Econ. 123:703–45 [Google Scholar]
  45. Ferraz C, Finan F. 2011. Electoral accountability and corruption: evidence from the audits of local governments. Am. Econ. Rev. 101:1274–311 [Google Scholar]
  46. Fisman R, Gatti R. 2002. Decentralization and corruption: evidence across countries. J. Public Econ. 83:325–45 [Google Scholar]
  47. Fjeldstad O, Therkildsen O. 2008. Mass taxation and state-society relations in East Africa. Taxation and State-Building in Developing Countries: Capacity and Consent Bräutigam DA, Fjeldstad O, Moore M. 114–34 Cambridge, UK: Cambridge Univ. Press [Google Scholar]
  48. Forstater M. 2003. Taxation: a secret of colonial capitalist (so-called) primitive accumulation. Work. Pap. 25, Cent. Full Employ. Price Stab., Univ. Mo., Kansas City
  49. Gadenne L. 2012. Three essays on public finance in developing countries. PhD Thesis, Paris Sch. Econ.
  50. Gadenne L. 2013. Tax me, but spend wisely: sources of public finance and government accountability. Work. Pap., Univ. Coll. London
  51. Galasso E, Ravallion M. 2005. Decentralized targeting of an antipoverty program. J. Public Econ. 89:705–27 [Google Scholar]
  52. Galiani S, Gertler P, Schargrodsky E. 2008. School decentralization: helping the good get better, but leaving the poor behind. J. Public Econ. 92:2106–20 [Google Scholar]
  53. Gardner LA. 2010. Decentralization and corruption in historical perspective: evidence from tax collection in British colonial Africa. Econ. Hist. Dev. Reg. 25:213–36 [Google Scholar]
  54. Gordon RH. 1983. An optimal taxation approach to fiscal federalism. Q. J. Econ. 98:567–86 [Google Scholar]
  55. Gordon RH, Li W. 2009. Tax structures in developing countries: many puzzles and a possible explanation. J. Public Econ. 93:855–66 [Google Scholar]
  56. Himanshu, Sen A. 2013. In kind food transfers—II: impact on nutrition and implications for food security and costs. Econ. Polit. Wkly. 48:60–73 [Google Scholar]
  57. Inman RP, Rubinfeld DL. 1996. Designing tax policy in federalist economics: an overview. J. Public Econ. 60:307–34 [Google Scholar]
  58. Int. Monet. Fund 2009. Macro policy lessons for a sound design of fiscal decentralization. Rep., Int. Monet. Fund, Washington, DC
  59. Int. Monet. Fund 2012. Fiscal regimes for extractive industries: design and implementation. Rep., Int. Monet. Fund, Washington, DC
  60. Keen M. 2012. Taxation and development—again. Work. Pap. 12/220, Int. Monet. Fund, Washington, DC
  61. Khan A, Khwaja A, Olken B. 2013. Tax farming redux: experimental evidence on incentive pay for tax collectors. Work. Pap., Harvard Univ., Cambridge, MA
  62. Khwaja AI. 2009. Can good projects succeed in bad communities?. J. Public Econ. 93:899–916 [Google Scholar]
  63. Kis-Katos K, Sjahrir BS. 2014. The impact of fiscal and political decentralization on local public investments in Indonesia. Discuss. Pap. 7884, Inst. Study Labor, Bonn, Ger
  64. Leicester A, Levell P, Rasul I. 2012. Tax and benefit policy: insights from behavioural economics. Rep., Inst. Fisc. Stud., London
  65. Litschig S, Zamboni Y. 2013. Audit risk and rent extraction: evidence from a randomized evaluation in Brazil. Econ. Work. Pap. 1270, Dep. Econ. Bus., Univ. Pompeu Fabra, Barcelona
  66. Maddison A. 2008. Statistics on world population, GDP and per capita GDP, 1–2008 AD. http://www.ggdc.net/MADDISON/Historical_Statistics/horizontal-file_02-2010.xls
  67. Martinez-Vazquez J, McNab RM. 2003. Fiscal decentralization and economic growth. World Dev. 31:1597–616 [Google Scholar]
  68. Miguel E, Gugerty MK. 2005. Ethnic diversity, social sanctions, and public goods in Kenya. J. Public Econ. 89:2325–68 [Google Scholar]
  69. Mitchell BR. 1988. British Historical Statistics Cambridge, UK: Cambridge Univ. Press
  70. Muralidharan K, Niehaus P, Sukhtankar S. 2014. Payments infrastructure and the performance of public programs. Work. Pap., Dartmouth Coll., Hanover, NH
  71. Musgrave RA. 1959. The Theory of Public Finance New York: McGraw-Hill
  72. Niehaus P, Sukhtankar S. 2013. The marginal rate of corruption in public programs. J. Public Econ. 104:52–64 [Google Scholar]
  73. Oates WE. 1972. Fiscal Federalism New York: Harcourt Brace
  74. Oates WE. 1985. Searching for Leviathan: an empirical study. Am. Econ. Rev. 75:748–57 [Google Scholar]
  75. Oates WE. 2005. Toward a second-generation theory of fiscal federalism. Int. Tax Public Finance 12:349–73 [Google Scholar]
  76. Olken BA. 2006. Corruption and the costs of redistribution: micro evidence from Indonesia. J. Public Econ. 90:853–70 [Google Scholar]
  77. Olken BA. 2007. Monitoring corruption: evidence from a field experiment in Indonesia. J. Polit. Econ. 115:200–49 [Google Scholar]
  78. Olken BA, Barron P. 2009. The simple economics of extortion: evidence from trucking in Aceh. J. Polit. Econ. 117:417–52 [Google Scholar]
  79. Olken BA, Pande R. 2012. Corruption in developing countries. Annu. Rev. Econ. 4:479–505 [Google Scholar]
  80. Olken BA, Singhal M. 2011. Informal taxation. Am. Econ. J. Appl. Econ. 3:1–28 [Google Scholar]
  81. Pommerehne WW. 1977. Quantitative aspects of federalism: a study of six countries. In The Political Economy of Fiscal Federalism, ed. WE Oates, pp. 275–355. Lexington, MA: Heath-Lexington
  82. Reinikka R, Svensson J. 2004. Local capture: evidence from a central government transfer program in Uganda. Q. J. Econ. 119:678–704 [Google Scholar]
  83. Reinikka R, Svensson J. 2011. The power of information in public services: evidence from education in Uganda. J. Public Econ. 95:956–66 [Google Scholar]
  84. Rush JR. 2007. Opium to Java: Revenue Farming and Chinese Enterprise in Colonial Indonesia, 1860–1910 Singapore: Equinox
  85. Seabright P. 1996. Accountability and decentralization in government: an incomplete contracts model. Eur. Econ. Rev. 40:61–89 [Google Scholar]
  86. Shah A. 2006. Local Governance in Developing Countries. Washington, DC: World Bank
  87. Shleifer A, Vishny RW. 1993. Corruption. Q. J. Econ. 108:599–617 [Google Scholar]
  88. Skinner J. 1991. If agricultural land taxation is so efficient, why is it so rarely used?. World Bank Econ. Rev. 5:113–33 [Google Scholar]
  89. Skoufias E. 2005. PROGRESA and its impacts on the welfare of rural households in Mexico. Res. Rep. 39, Int. Food Policy Res. Inst., Washington, DC
  90. Slemrod J. 2007. Cheating ourselves: the economics of tax evasion. J. Econ. Perspect. 21:25–48 [Google Scholar]
  91. Soares S. 2012. Bolsa Família: a summary of its impacts. Work. Pap., Int. Policy Cent. Incl. Growth, Brazil
  92. Tiebout CM. 1956. A pure theory of local expenditures. J. Polit. Econ. 64:416–24 [Google Scholar]
  93. United Nations 2009. International Guidelines on Decentralization and Access to Basic Services for All Nairobi: UN-HABITAT
  94. US Census Bur 2010. Annual Survey of State and Local Government Finances and Census of Governments (1902–2008). US Census Bur., Washington, DC
  95. Wallis JJ, Oates WE. 1988. Does economic sclerosis set in with age? An empirical study of the Olson hypothesis. Kyklos 41:397–417 [Google Scholar]
  96. Weingast BR. 2009. Second generation fiscal federalism: the implications of fiscal incentives. J. Urban Econ. 65:279–93 [Google Scholar]
  97. Werker E, Ahmed FZ. 2008. What do nongovernmental organizations do?. J. Econ. Perspect. 22:73–92 [Google Scholar]
  98. World Bank 1997. World Development Report 1997: The State in a Changing World. Washington, DC: World Bank
  99. World Bank 1999. World Development Report 1999/2000: Entering the 21st Century—The Changing Development Landscape. Washington, DC: World Bank
  100. World Bank 2002. Decentralization in Africa: a stocktaking survey. Afr. Reg. Work. Pap. 40, World Bank, Washington, DC
  101. World Bank 2004. World Development Report 2004: Making Services Work for Poor People. Washington, DC: World Bank
  102. World Bank 2009. World Development Indicators. Washington, DC: World Bank
/content/journals/10.1146/annurev-economics-080213-040833
Loading
/content/journals/10.1146/annurev-economics-080213-040833
Loading

Data & Media loading...

Supplemental Material

Supplementary Data

  • Article Type: Review Article
This is a required field
Please enter a valid email address
Approval was a Success
Invalid data
An Error Occurred
Approval was partially successful, following selected items could not be processed due to error