Fiscal federalism in Bosnia-Herzegovina : The Dayton challenge

The authors describe Bosnia's current arrangements in fiscal federalism, outline the unique challenges that the Dayton system proposed, and draw lessons for the design of fiscal federal systems in ethnically diverse economies. Traditional economic models of federalism suggest a government structure assuming there is an intent to achieve Pareto-efficiency for the entire country. Current attitudes in Bosnia challenge this paradigm's aptness unmodified, since many people in each ethnic group see themselves as members of their group, rather than as Bosnians, and are not broadly concerned about the entire country's welfare or access to public services outside the group. The motivation for the fiscal federalism structure proposed in the Dayton Accords is better interpreted as an effort to manage conflict between the ethnic groups. Federalism, in a conflict management sense, does not require that each group be given its own state; rather it leads to the conclusion that institutions of power should be brought closer to the people so that decisionmaking can be more sensitive to the different ethnic groups. Decentralization in this context is a means to lessen the points where disagreement exists, rather than a structure to obtain economic efficiency. Common institutions at the state, entity or canton levels are maintained, but only for functions that must be broader in scope. The fiscal (and other) interdependencies flowing from these institutions present opportunities to build relationships and trust over time. While the government structure included in Dayton is workable, governments must negotiate other arrangements to prevent, in the short to medium term, diseconomies of scale in providing certain services that are more cost-efficient at other levels. In the latter scenario, services with geographic spillovers would be underprovided because governments would fail to adequately account for benefits received by other ethnic group members. Further, little concern would be given to equitable distribution of services, resulting in widely different access across the country. Better service delivery mechanisms -from a national, Pareto-efficient perspective- will not be selected given the very strong distaste for cross subsidies and minority group fears of larger group domination. Despite these concerns, the authors conclude that more efficient arrangements can be expected to evolve over time as confidence in the government structures evolve.Public Sector Economics&Finance,Municipal Financial Management,National Governance,Banks&Banking Reform,Environmental Economics&Policies,National Governance,Public Sector Economics&Finance,Banks&Banking Reform,Environmental Economics&Policies,Municipal Financial Management

Fiscal decentralization and intergovernmental relations in transition economics : toward a systematic framework of analysis

The decentralization of government in Eastern Europe represents a reaction both from below (to tight central political control) and from above (to privatize the economy and relieve the central government's fiscal stress). In all transitional economies, the developing structure of intergovernmental relations is intimately related to such critical policy issues as privatization, stabilization, and the social safety net. In the fiscal sphere, tax reform, deficit control, and intergovernmental finance are a tripod. Unless each leg is set up properly, the whole structure could collapse. The present strategy of devolving expenditures downward while holding back on revenue flows and transfers to balance the central budget is unlikely to succeed for more than a year or two at best. Net spending reductions at the subnational level may be difficult to achieve. From 10 to 40 percent of outlays go to the subnational sector, and in many countries local governments provide much of the social safety that makes the pain of the economic transition politically tolerable. And, most housing and many enterprises have been shifted to local ownership, with the maintenance and subsidy cost this implies. Since the revenue sources assigned to local governments cannot finance expected levels of local activity, the result of shifting spending downward is likely to be strong demands for increased, rather than decreased, transfers. Alternatively, subnational government may look to coping mechanisms such as holding on to their enterprises (which provide vital social services), developing extrabudgetary revenues, or borrowing. These coping mechanisms threaten privatization, reduce budgetary transparency, and impede stabilization policies. The authors describe the risks to privatization, to macroeconomic stability, and to an adequate social safety net that present policies toward local government may imply. Its themes are that the subnational sector needs to be more realistically factored into national plans - and that subnational expenditures be more clearly assigned and revenue needs more realistically assessed. Such assessments are likely to acknowledge a larger sphere for subnational governments and the need for access to more robust revenue sources. Giving local government a share in the personal income tax is one possible and perhaps desirable approach to meeting these revenues needs. Careful attention needs to be paid to the design and implementation of the intergovernmental fiscal transfers likely to remain prominent features of the intergovernmental landscape for years to come. Caution is also needed on borrowing by subnational government. Consolidating and integrating extrabudgetary funds at the subnational (and national) levels is crucial to enhanced budgetary transparency and macrostability.Banks&Banking Reform,National Governance,Public Sector Economics&Finance,Municipal Financial Management,Urban Economics

Financing local government in Hungary

Hungary has undertaken a bold and far-ranging reform of its system of subnational finances. This paper outlines the changes introduced in the system of local finance as a result of the 1990 Local Self-Government Act, and the 1990 Act on Local Taxes and provides a preliminary assessment of their implications as well as the need for further reform. These Acts, together with the annual Act on the Budget, define the overall scope and authorities of Hungary's approximately 3100 new local self-governments. These Acts: (i) define the new assignment of expenditures between central and local government; (ii) define the new local revenue sources; and (iii) establish the economic foundation, property rights and entrepreneurial functions of the localities. The paper outlines the historical evolution of the system, provides international comparisons, and describes its present-day form. Drawing on this background, it suggests some revised policies that should not only both help avert the potentially undesirable outcomes of the current system but, more positively, help Hungary to achieve its goal of a smaller, more efficient government sector without unduly exacerbating social inequalities. In turn, issues and recommendations are discussed in the following areas: local finance; assignment of expenditures; assignment of taxes; design of the transfer system; role of the localities in property management; capital investment; and other requisites for sound local finance.Banks&Banking Reform,Municipal Financial Management,National Governance,Urban Economics,Public Sector Economics&Finance

Fiscal decentralization and intergovernmental finances in the Republic of Albania

Economic decentralization emerged as an issue in Albania following the first election of a noncommunist government in Albania in 1992. It is one of many challenges in creating a fiscal system that supports reform. Decentralization has begun with the central government's transferring spending responsibilities primarily for some local infrastructure services to local governments. But, given Albania's small size, it is unclear whether"people"services such as education and health care need to be delegated to local governments. Although the destruction of local health and education facilities accompanying the demise of the old regime argues for giving communities a greater sense of ownership of these facilities, they should not be handed down without mechanisms to ensure uniform service standards. Draft laws focus on the transfer of assets (schools and clinics) to local jurisdictions but are vague about responsibilities for recurrent spending. And because local spending responsibilities are expanding, local governments need increased revenues to finance them. Providing an adequate social safety net is vital in Albania - the poorest of the economies in transition - and the government has taken steps to ensure that parts of it are locally administered, though centrally funded. The key to a well-designed intergovernmental financial system is to clearly define spending responsibilities so that a revenue system can be designed to accommodate them. Such a system would combine revenue-sharing, own-source revenues, and intergovernmental transfers. Tax-sharing of central government revenues based on district of origin cannot be the only means of local finance in Albania, as most revenues are collected in only a few districts. To meet financial needs, local governments need some authority over significant own-source revenues (such as user charges and property and vehicle taxes). Privatization revenues can also help local governments but only in the short run, as they are nonrecurrent. Matching grants with spillover effects may be appropriate. And for low-income regions incapable of meeting their spending needs alone, a transparent, equalizing transfer system should be developed. Albania's draft laws allow for this possibility, having established constituent and independent budgets for the local level.National Governance,Banks&Banking Reform,Municipal Financial Management,Public Sector Economics&Finance,Public&Municipal Finance

Intergovernmental fiscal relations in China

The choice of the"right"fiscal relationship between central, provincial, and local governments depends on how a government weighs the benefits of decentralized economic development policies against the costs of having less effective central fiscal management. Three strong forces justify more fiscal centralization in China's highly decentralized fiscal system. First, Bouts of inflation and recurrent fiscal deficits can be seen as calling for more central control over the budget. Second, Reform of an economic system relies heavily on the use of tax policy as an allocative instrument to influence economic decisions. Local control of the implementation of the tax system can and probably has compromised some objectives of the central government's tax policy. Gaining tighter control over the revenue system will probably require reducing if not eliminating local government discretion in providing special tax concessions. Third, if the center wants to move ahead with price reform and to encourage enterprise reform, it needs a more centrally controlled revenue sharing or assignment system that reduces the dislocating effects of such reforms. Bahl and Wallich conclude that a reformed system of intergovernmental finance must meet the center's needs for stabilization and the provinces'needs for revenue and equalized spending capacity, supplemented by an improved system of financing local capital expenditures through borrowing, a system of benefit charges and improved planning.Public Sector Economics&Finance,National Governance,Banks&Banking Reform,Municipal Financial Management,Urban Economics

Raising household energy prices in Poland : who gains? who loses?

The authors examine the welfare effects of increasing household energy prices in Poland. Their main finding is that the policy of subsidizing household energy prices, common in the transition economies of Eastern Europe and the former Soviet Union, is regressive. Such programs do help the poor by providing them with lower-cost energy, but they are more useful to the rich, who consume more energy. What is surprising is the extent to which Poland's nonpoor have benefited from lower energy prices. Non only do the wealthy consume more energy in absolute terms than the poor, but they also spend a larger portion of their income on energy. Their analysis allowed the authors to rule out the oft-used social welfare argument for delaying increases in household energy prices, but they do not try to recommend a dynamically efficient pricing path. The first-best response would be to raise energy prices while targeting cash relief to the poor through a social assistance program. This is far more efficient than the present go-slow price adjustment policies, which imply energy subsidies that provide across-the-board relief to all consumers. But if governments want to provide some relief for consumers to ease the adjustment, several options are available: in-kind transfers to the poor, vouchers, cash transfers, and lifeline pricing for a small block of electricity combined with significant price increases. Simulations show that if raising prices to efficient levels for all consumers is not now politically feasible, it may be socially better to use lifeline pricing and a large price increase rather than an overall (but smaller) price increase. Lifeline pricing for electricity in combination with an 80 percent price increase has better distributional effects than a 50 percent across-the-board price increase. Ideally, the public utility would be compensated from the budgtet for any reduced-price sales, rather than having to finance them through internal cross-subsidies. In-kind transfers to poor households are also effective in terms of efficiency, but may be harder to administer in some countries than lifeline pricing.Engineering,Environmental Economics&Policies,Economic Theory&Research,Markets and Market Access,Payment Systems&Infrastructure,Environmental Economics&Policies,Economic Theory&Research,Markets and Market Access,Access to Markets,Energy Demand

Fiscal Federalism in Russia

This chapter discusses the context and evolution of Russia\u27s fiscal system, its expenditures and expenditure assignment policies, the current tax and intergovernmental system, and options for reform

Intergovernmental Fiscal Relations in China

The choice of the right fiscal relationship between central, provincial, and local govern­ments depends on how a government weighs the benefits of decentralized economic development policies against the costs of having less effective central fiscal management. Three strong forces justify more fiscal centralization in China\u27s highly decentralized fiscal system at the present time: Bouts of inflation and recurrent fiscal deficits can be seen as calling for more central control over the budget. Reform of an economic system relies heavily on the use of tax policy as an allocative instrument to influence economic decisions. Local control of the implementation of the tax system can and probably has compromised some objectives of the central government\u27s tax policy. Gaining tighter control over the revenue system will probably require reducing, if not eliminating, local government discretion in providing special tax concessions. If the center wants to move ahead with price reform and to encourage enterprise reform, it needs a more centrally controlled revenue sharing or assignment system that reduces the dislocating effects of such reforms. Centralizing the fiscal system nevertheless reduces the potential for vesting more budgetary decision-making powers in local governments and can erode local and provincial governments\u27 incentives for raising revenues, another goal of system reform. Moreover, there are major problems with introducing fiscal centralization in a country with a heterogeneous population of 1 billion and relatively little tradition of central government fiscal administration. Bahl and Wallich conclude that a reformed system of intergovernmental finance must meet the center\u27s needs for stabilization and the provinces\u27 needs for revenue and equalized spending capacity. They argue that such equal­ization should be based on objective indicators of need and that a formula-based grant system best meets this latter objective. A reformed system must also underpin price and enterprise reform -and should be designed so as not to require major recalibration or adjustments while such reforms are taking place. Bahl and Wallich also conclude that reform of the relationship of central and local governments should be supplemented by an improved system of financing local capital expenditures through borrowing, a system of benefit charges, and improved financial planning and tax administration

Contribution of the Infection-Associated Complement Regulator-Acquiring Surface Protein 4 (ErpC) to Complement Resistance of \u3cem\u3eBorrelia Burgdorferi\u3c/em\u3e

Borrelia burgdorferi evades complement-mediated killing by interacting with complement regulators through distinct complement regulator-acquiring surface proteins (CRASPs). Here, we extend our analyses to the contribution of CRASP-4 in mediating complement resistance of B. burgdorferi and its interaction with human complement regulators. CRASP-4 (also known as ErpC) was immobilized onto magnetic beads and used to capture proteins from human serum. Following Western blotting, factor H (CFH), CFH-related protein 1 (CFHR1), CFHR2, and CFHR5 were identified as ligands of CRASP-4. To analyze the impact of native CRASP-4 on mediating survival of serum-sensitive cells in human serum, a B. garinii strain was generated that ectopically expresses CRASP-4. CRASP-4-producing bacteria bound CFHR1, CFHR2, and CFHR5 but not CFH. In addition, transformed spirochetes deposited significant amounts of lethal complement components on their surface and were susceptible to human serum, thus indicating that CRASP-4 plays a subordinate role in complement resistance of B. burgdorferi

Contribution of the Infection-Associated Complement Regulator-Acquiring Surface Protein 4 (ErpC) to Complement Resistance of Borrelia burgdorferi

Borrelia burgdorferi evades complement-mediated killing by interacting with complement regulators through distinct complement regulator-acquiring surface proteins (CRASPs). Here, we extend our analyses to the contribution of CRASP-4 in mediating complement resistance of B. burgdorferi and its interaction with human complement regulators. CRASP-4 (also known as ErpC) was immobilized onto magnetic beads and used to capture proteins from human serum. Following Western blotting, factor H (CFH), CFH-related protein 1 (CFHR1), CFHR2, and CFHR5 were identified as ligands of CRASP-4. To analyze the impact of native CRASP-4 on mediating survival of serum-sensitive cells in human serum, a B. garinii strain was generated that ectopically expresses CRASP-4. CRASP-4-producing bacteria bound CFHR1, CFHR2, and CFHR5 but not CFH. In addition, transformed spirochetes deposited significant amounts of lethal complement components on their surface and were susceptible to human serum, thus indicating that CRASP-4 plays a subordinate role in complement resistance of B. burgdorferi