Fiscal decentralization and the size of the government : an extension with evidence from cross-country data

Prior analyses of the relationship between fiscal decentralization and the size of government treat fiscal decentralization as the decentralization of either taxing or spending powers. But decisions about taxation and spending are inseparable. The author corrects this deficiency and analyzes the effect of simultaneous decentralization of taxing and spending powers -"fiscal decentralization"- on the overall size of the public sector using cross-country data. The economic results of his study show that: (a) The simultaneous decentralization of the national government's taxing and spending powers tend to reduce the size of the public sector. (b) The Revenue-sharing arrangements in which decisions about taxation are made by the national government tend to eliminate the constraining effect of the decentralized spending power. What do these findings suggest? Countries, such as economies in transition, that want to reduce the size of the public sector should decentralize both taxing and spending decisions.Banks&Banking Reform,Municipal Financial Management,National Governance,Public Sector Economics&Finance,Economic Theory&Research

An econometric method for estimating the tax elasticity and the impact on revenues of discretionary tax measures : applied to Malawi and Mauritius

This paper develops an econometric technique that deals with shortcomings of existing methods for estimating the tax elasticity and the impact on revenues of discretionary tax measures. This model highlights the roles that discretionary tax measures and economic growth play in effecting the shift from the taxation of international trade to the taxation of domestic transactions. The objective of this study is twofold: first, to develop an econometric method of estimating built-in tax elasticity, and, hence, isolating the revenue impact of discretionary tax measures from that of economic growth; and second, to apply this model to selected sub-Saharan Africa countries in order to highlight the contribution of discretionary actions taken by fiscal authorities to trends of tax effort and individual tax shares during the past two decades. The structural adjustment programs of developing countries use fiscal deficit reduction as one of the policy tools for achieving real economic growth with price stability and balance of payments viability. In dealing with this deficit within such a framework, projects need to be made of the additional revenues which can be mobilized within the existing tax system as gross domestic product (GDP) grows. These projections indicate the need to activate additional means of revenue generation, particularly politically difficult discretionary tax measures.Public Sector Economics&Finance,Economic Theory&Research,Environmental Economics&Policies,Taxation&Subsidies,Tax Policy and Administration