Frameworks for Central–Local Government Relations and Fiscal Sustainability

48 Pages Posted: 4 Jan 2017

See all articles by Peter Morgan

Peter Morgan

ADBI

Long Q. Trinh

Asian Development Bank Institute

Date Written: October 24, 2016

Abstract

Sustainable and inclusive growth in emerging Asian economies requires continued high levels of public sector investment in areas such as infrastructure, education, health, and social services. These responsibilities, especially with regard to infrastructure investment, need to be devolved increasingly to the regional government level. However, growth of sources of revenue and financing for local governments has not necessarily kept pace, forcing them, in some cases, to increase borrowing or cut spending below needed levels.

This paper reviews alternative models of the relationship between central and local governments, and provides an overview and assessment of different financing mechanisms for local governments, including tax revenues, central government transfers, bank loans, and bond issuance, with a focus on the context of emerging Asian economies. The paper also reviews financing mechanisms for local governments and mechanisms for maintaining fiscal stability and sustainability at both the central and local government levels. Based upon the evidence on the decentralization process in Asia, it proposes some policy implications for improving central-local government relations and fiscal sustainability.

Keywords: government decentralization, government fiscal balance, intra-government transfers, expenditure assignment, revenue assignment, local government borrowing, mechanisms for fiscal stability

JEL Classification: H70, H71, H72, H74, H77

Suggested Citation

Morgan, Peter J. and Trinh, Long Q., Frameworks for Central–Local Government Relations and Fiscal Sustainability (October 24, 2016). ADBI Working Paper 605, Available at SSRN: https://ssrn.com/abstract=2892923 or http://dx.doi.org/10.2139/ssrn.2892923

Peter J. Morgan (Contact Author)

ADBI ( email )

Kasumigaseki Building 8F 3-2-5
Kasumigaseki, Chiyoda-ku
Tokyo, 100-6008
Japan

Long Q. Trinh

Asian Development Bank Institute ( email )

Kasumigaseki Building 8F
3-2-5, Kasumigaseki, Chiyoda-ku
Tokyo, 100-6008
Japan

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