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Intergovernmental fiscal transfer in nine countries : lessons for developing countries, Volume 1
Author:Jun Ma; Country:Germany; Canada; Japan; United Kingdom; United States; Korea, Republic of; Australia; China; Indonesia; India;
Date Stored:2000/02/24Document Date:1997/09/30
Document Type:Policy Research Working PaperSubTopics:Urban Governance and Management; Banks & Banking Reform; National Governance; Regional Governance; Municipal Financial Management; Public Sector Economics
Language:EnglishMajor Sector:Public Administration, Law, and Justice
Region:East Asia and Pacific; Europe and Central Asia; South Asia; OTHReport Number:WPS1822
Sub Sectors:Public Financial ManagementCollection Title:Policy, Research working paper ; no. WPS 1822
Volume No:1  

Summary: The author presents an overview of intergovernmental fiscal transfer systems used in nine developing and industrial countries, and draws implications for other developing countries. On the basis of a comparison of these countries, the author classifies equalization transfer formulas into four categories, analyzes the data requirements of each type of formula, discusses the applicability of these formulas in developing countries, and uses illustrative examples to show how the calculations should be carried out. The author also discusses implementation issues, including the transition from an old to a new transfer system. Finally, he presents an illustrative equalization transfer model for China. He concludes that the formula-based equalization transfer system has at least three advantages over the discretionary system prevailing in many countries: 1) It provides the single most important means to address regional disparities; 2) It bases the evaluation of a subnational government's entitlement on objective variables, thus minimizing bargaining and lobbying, and keeping distribution fair; 3) If properly designed, the formula-based system eliminates the disincentive inherent in many discretionary systems that encourages overspending and weak tax collection efforts.

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