آیا کمک های خارجی به دولت های محلی، میزان درآمد دولت را ضعیف می کند؟نگاهی به پویایی های دارایی عمومی محلی در چین

Using rich panel data on all of Ghana’s districts’ local public finances over 11 years, this paper investigates the way that intergovernmental and other transfers to local governments affect local governments’ incentives to collect internally generated revenues and funds (IGF). We find that despite an incentive scheme built into one of the major intergovernmental grants, the flow of all grants taken together discourages, rather than encourages, IGF. This is reflected both in the depressing effect of transfers on IGF levels, as well as on IGF growth.

Since the late 1980s, many developing countries have started the process of devolving political, administrative, and fiscal responsibilities from central to provincial and local jurisdictions. The motivations of countries for undergoing such a governance change are varied and include a range of political as well as social and economic factors. Even where political factors have been the main drivers in implementing decentralization, strong financial backing from the donor community has usually been founded on economic arguments, many of which have been laid down in the canonical literature on decentralization. Subnational governments may have better information (or can obtain information more cheaply) about the local needs for and requirements of public services, and thus a decentralized system would generate greater allocative efficiency in public service provision (Hayek, 1945). Improved public service provision would also emerge in a politically and fiscally decentralized system through greater political competition at the local level, leading to more accountable local governments (Crook & Manor, 1998), and through greater jurisdictional competition arising from citizens choosing their location on the basis of the quality of services (Tiebout, 1956).1 These and other arguments for decentralization rest strongly on the assumption that the fiscal aspect of decentralization in fact results in local governments gaining substantial discretion in allocating public resources to competing economic uses in their jurisdictions. This assumption is germane to the realization of the benefits from decentralization mentioned above, since achieving these benefits are predicated on the notion of local governments as capable decisionmakers, able to act upon information and upon the pressures of political and jurisdictional competition. In practice, in many developing countries—as in the case of Ghana, which this paper focuses on—local fiscal discretion is highly restricted in the sense that local authorities may have relatively little control even over their own budgets. In Ghana, a substantial share of local authorities’ revenues is made up of transfers from upper tiers of government or from donors, and these funds tend to be tied to particular activities, projects, or sectors.2 Revenues that local governments generate themselves, through the tax and fee bases assigned to them, can, in contrast, be used in a completely flexible manner. In this sense, local governments’ fiscal autonomy is intimately tied to their ability to generate own resources. Therefore, an important part of the policy debate around decentralization concerns the question of how local governments can expand their fiscal autonomy by increasing their internally generated revenues and funds (IGF) and realize the hypothesized efficiency gains in the local provision of public services. In Ghana, there are a range of potential constraints affecting the ability of district assemblies—the term for Ghana’s district-level governing bodies—to expand their IGF. These include the scope of local governments’ revenue assignments, revenue collection capacity, discretion in setting rates on their tax and fee bases, and enforcement of honest revenue-collection practices. This paper focuses on a specific potential driver of IGF, by investigating what impact the flow and size of external grants (i.e., central government and donor funds) have had on the incentives of local governments to generate their own revenues. While this question has received research attention in the developed country context, there is hardly any literature in developing regions that empirically examines the effect of intergovernmental and other external fiscal transfers on local governments’ internal revenue effort. With grants comprising the bulk of local governments’ total revenues, the incentive effect that grants have on local governments’ own revenues is a critical policy concern in Ghana. The recent Decentralization Policy Review, conducted jointly by the government and donors in Ghana to inform the development of a new decentralization policy by the cabinet, states that although the DACF [District Assemblies Common Fund] formulae contains [sic] a small incentive to improve on IGF (very small criteria weight for the so-called “responsiveness” factor), this is not perceived sufficient to promote improvements in the MMDA [Metropolitan, Municipal, and District Assembly] revenue mobilization. As indicated in a report from 2000, the incentives to collect revenues may be impacted negatively by the increase in grants. Further studies of this and of the real MMDA revenue potential within the existing legal framework is urgently required. (GoG (Government of Ghana), 2007, p. 52). This paper sets out to investigate this very question: How does the flow of intergovernmental grants to local governments affect their incentives to raise their own revenues? In the next section, we present our framework and a review of the empirical literature on how external grants, as well as other factors, may affect local revenues.3 This is followed in Section 3 by an outline of the policy and empirical context for this study, a discussion of district governments’ revenue structure and degree of fiscal autonomy, and the criteria used in determining how one major grant facility is allocated across districts, particularly the own revenue incentivization criterion. Section 4 describes the empirical model for determining the effect that intergovernmental and external transfers have on districts’ incentives for generating own revenues. In so doing, we describe the potential confounding factors which may introduce bias in the estimation of this effect, and outline an estimation and instrumentation strategy to address these factors. The results are discussed in Section 5, and the final section offers concluding thoughts.

The main motivation for decentralization, namely, that subnational governments are better placed to allocate public resources more efficiently and effectively, is often supported by the argument that subnational governments have better information about the needs for and requirements of public services in their jurisdictions. This argument in favor of decentralization rests strongly on the assumption that local governments have a substantial degree of fiscal autonomy and are able to use local discretion in resource allocation. However, the fiscal responsibilities of local governments often remain quite circumscribed, and their budgets are dominated by external transfers that are tied to specific investments, which may or may not match the priorities of local governments. Given such a constellation, in the case of Ghana local governments’ fiscal autonomy is exercised predominantly through their internally generated funds (IGF), which are allocated to services and public goods without central government or other external spending criteria imposed. Using 1994–2004 panel data on all 11017 district governments’ public finances and other district-level data, this paper examined the impact of the flow and size of externally generated revenues on the incentives these induce on the part of local governments to undertake their own revenue raising efforts. The impact of fiscal transfers to local governments on their internal revenue generation incentives has been quantitatively analyzed in developed countries, but has hardly received similar attention in the developing country context. In this respect, research lags behind policy attention, as concern about a potential disincentive effect has been in the decentralization policy discourse in Ghana for some years. We find that greater past external transfers to district governments do not encourage internal revenue generation, but instead have a depressing effect on own revenues. And despite inbuilt incentives in the allocation formula for one of the key intergovernmental grants, increases in grants and transfers lead to a modest but statistically significant decline in local revenue effort, not the increase hoped for by policy makers in the decentralization community. When potential simultaneity emerging from the incentive schemes is more explicitly accounted for, the negative effects of external grants on local revenues becomes much more pronounced, suggesting that the incentives may mitigate, but by no means eliminate, the negative impact transfers have on locally raised revenues. In addition to examining a level effect on own revenues, we assess how transfers affect subsequent growth of IGF, finding again a depressing effect. One can argue that a necessary (albeit not sufficient) condition for the gains of decentralization to be realized is that local governments have substantive autonomy over how resources are allocated across competing needs in their jurisdiction. Ghana’s decentralization landscape is characterized by local budgets that are very small relative to central government spending in districts, own-sourced local revenues that are small relative to other sources of local budgets (and limited local autonomy over the latter), and, as discussed in this paper, a prevailing negative impact of transfers on own-sourced revenues. In this context, serious consideration should be given to the alternative mechanisms to increase local governments’ fiscal autonomy, and perhaps just as importantly, to the political economy factors which may affect feasibility of implementing these mechanisms.