Public services and expenditure need equalization : reflections on principles and worldwide comparative practices, Vol. 1 of 1

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Public services and expenditure need equalization : reflections on principles and worldwide comparative practices

Author:	Shah, Anwar;	Collection Title:	Policy Research working paper ; no. WPS 6006
Country:	World;	Date Stored:	2012/03/20
Document Date:	2012/03/01	Document Type:	Policy Research Working Paper
Language:	English	Region:	The World Region
Report Number:	WPS6006	SubTopics:	Access to Finance; Banks & Banking Reform; Subnational Economic Development; Municipal Financial Management; Public Sector Economics
Volume No:	1 of 1

Summary: This paper reviews the conceptual challenges as well as lessons from worldwide experiences in implementing public services and expenditure need compensation in fiscal equalization transfers with a view to developing guidance for practitioners. The paper concludes that while in theory a strong case for a comprehensive fiscal equalization can be made, in practice fiscal need equalization as part of a comprehensive equalization program introduces significant complexity. This works against the simplicity, transparency and general acceptability of the program. This does not imply that fiscal need equalization should be abandoned in the interest of simplicity and transparency. Instead simplicity, transparency and local autonomy are preserved by having fiscal need equalization through public service oriented (specific purpose block transfers) output based fiscal transfers that impose no spending requirements for any functions or objects of expenditures. Such transfers contrast with traditional earmarked transfers, which impose conditions on spending for specific purposes or objects of expenditure and subsequent verification/certification of such expenditures. Such output-based block transfers would further enhance citizen based accountability for results and thereby offer potential for enhancing public confidence and trust in government operations.


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