Download Decentralization and Sub-National Economics Thematic Group

Data Note
The World Bank
Decentralization &
Sub-National Regional Economics Thematic Group
August 2004
Measuring Fiscal Decentralization
Available data are imperfect, but provide some indicative evidence on the extent of decentralization and the
importance of public finance at the state and local level.
Decentralization is a complex and multifaceted
concept that spans fiscal, political, and
administrative dimensions. While measuring
decentralization is equally complex, the fiscal
flows to, from and among different levels of
government can be used to assess aspects of
fiscal decentralization across countries,
regions, and time.
Fiscal
decentralization
encompasses
expenditure and financing dimensions. To
understand who does what, the amount of subnational government spending relative to the
central government (e.g., relative to total
public expenditure or GDP) or on particular
sectors (e.g., education or health) is often
analyzed.
How sub-national governments
finance these expenditures, either through own
revenues, shared revenues, or transfers from
the central government is also relevant.
The best data source for cross-country analysis
of fiscal flows is the International Monetary
Fund’s (IMF) Government Finance Statistics
(GFS), which provides data with consistent
definitions across countries and years. The
purpose of the GFS is to provide data for
monitoring, analyzing and evaluating the
performance of the general government
sectors, in a framework that is applicable
across countries with different legal and
institutional structures.
The GFS provides a snapshot of state and local
finances in almost 70 countries. Disadvantages
are that coverage for particular regions and
individual years may be limited. For example,
coverage of OECD countries, transition
Fiscal Decentralization Indicators
economies, and Latin America tends to be
more complete than other regions.
Unlike recent efforts to provide more detailed
measurements, albeit for a limited sample of
countries (see Ebel and Yilmaz, 2002; Meloche
et. al., 2004), the GFS does not measure the
autonomy sub-national governments actually
have over revenues and expenditures. Since
sub-national governments are typically
constrained in fiscal decision making to some
degree by higher levels of government, this
could lead to an overestimate
of
decentralization.
Fiscal flows
to, from and
among
Fiscal Decentralization Indicators
The World Bank’s Decentralization and SubNational Regional Economics Thematic Group
has prepared over a dozen indicators of fiscal
decentralization from the IMF GFS. These are
accessible on the Thematic Group’s website.
The indicators include broad measures of subnational revenue mobilization, transfers,
expenditures, including sectoral indicators in
health and education (see Annex).
These indicators can used to illustrate global,
regional,
and
country
trends
in
decentralization. Given the many indicators,
and multiple ways to present them, there is no
single best way to present the data. Since data
are not available for all countries in any given
year, the most recently available observations
are used to describe magnitudes across
countries/regions. This note presents two,
illustrative indicators.
different levels
of government
can be used
to assess
some aspects
of fiscal
decentralizatio
n
August 2004
Expenditure Decentralization
The share of sub-national expenditures in total
government expenditures provides one broad
measure of decentralization. Annex Figure 1
shows graphically the total share of subnational expenditures, grouping OECD and
developing countries. The graph highlights the
differences in expenditure shares according to
this measure.
State and local tiers of
government contribute to these shares. For
example,
South
Africa’s
sub-national
expenditure share is 49 percent, of which 11
percent is attributable to local governments.
However, these measures do not assess the
extent to which expenditures are restricted to
certain
activities
(e.g.,
due
to
earmarked/conditional grants versus block
transfers, central mandates, etc.). The actual
degree of sub-national expenditure autonomy
varies significantly on a country-by-country
basis. Aggregate figures also mask the fact
that sub-national expenditure shares differ
markedly across sectors. For example, defense
spending typically tends to be highly
centralized, while countries exhibit varying
degrees of expenditure decentralization in
social sectors.
measure of vertical imbalance. For example,
in Albania, transfers accounted for 97 percent
of total sub-national revenues.
Aggregate measures of vertical imbalance will
not capture the significant horizontal
disparities that typically exist across regions
within a country (e.g., wealthy cities with a
buoyant tax base versus poor, lagging regions).
Conclusion
Decentralization is a multi-dimensional
phenomenon.
No single indicator neatly
summarizes the degree of decentralization.
Data limitations suggest that these indicators
must be interpreted with caution, but can
provide a starting point for evaluating
intergovernmental fiscal relations across
countries.
Additional qualitative indicators are also
available for expenditure and revenue
assignments, the regulatory system for subsub-national borrowing, and characteristics of
the transfer system. These can be further
complemented
with
indicators
of
political/electoral decentralization, including
the presence of elections at the sub-national
level (World Bank 2000).
Fiscal
decentralization
indicators based
on IMF GFS data
are available
from the
Decentralization
and Sub-National
Economics
Thematic Group
website
Vertical Revenue Imbalances
The distribution among types of sub-national
revenues can provide a broad measure of the
degree
of
decentralized,
own-revenue
mobilization and the dependence of subnational governments on central transfers.
Annex Figure 2 plots these types of revenues,
grouped by region. Within regions, countries
are ranked by the share of sub-national tax and
non-tax revenues in total revenue.
Since sub-national expenditure assignments
typically exceed tax and non-tax revenue
assignments, sub-national governments depend
on intergovernmental transfers in addition to
locally derived revenues. Limited own source
revenue mobilization is typically due to the
fact that revenues are more effectively
collected at higher levels, insufficient tax bases
have been assigned to lower levels, and/or
local revenue capacity and effort are weak.
The degree to which sub-national governments
depend on higher level transfers to finance
their expenditures can be interpreted as a
Fiscal Decentralization Indicators
This note was prepared by Kai Kaiser and Ines
Kudo
Further Reading
Ebel, Bob, Serdar Yilmaz, 2002, On the
Measurement and Impact of Fiscal
Decentralization, Washington, DC: World Bank
Policy Research Working Paper, WPS 2809
Meloche, Jean-Philippe; Vaillancourt, Francois;
Yilmaz, Serdar. 2004, Decentralization or
Fiscal Autonomy? What Does Really Matter?
Effects On Growth and Public Sector Size in
European Transition Countries, Washington,
DC: World Bank Policy Research Working
Paper, WPS 3254
World Bank, 2000, World Development Report:
Entering the 21st Century, Washington, DC
World Bank, 2004, Fiscal Decentralization
Indicators, Washington, DC: Poverty Reduction
and Economic Management (PREM),
Decentralization and Sub-National Economics
Thematic Group,
www1.worldbank.org/publicsector/Decentraliza
tionSubNationalEconomics
August 2004
Annex: Summary Data
The data set covers 18 annual, country-level
indicators of fiscal decentralization, which
are derived from the IMF-GFS. These
indicators can be presented along a number
of dimensions (e.g., across regions) in
tabular or graphic format.
List of Indicators
Summary Tables & Figures
A summary snap-shot of decentralization
across countries is provided by comparing
the latest available observations (starting
with data after 1990). Given the prevalence
of missing data, especially for recent years,
this strikes a balance between coverage and
selection of the most recent observation for
any given country.
Fiscal
decentralization
Aggregate Expenditures Measures
1 Sub-National Share of Expenditures (%
The tables present the corresponding country
Total)
level indicators arranged by region. Users
2 Sub-National Share of Expenditures (%
can select sub-sets of these data to create
Total, Net Defense & Interest)
customized tables (e.g., for sub-sets of
3 Sub-National Expenditures (% GDP)
countries such as federations).
indicators are
Sectoral Expenditures Measures
4 Education Share of Sub-National Spending
(% Sub-National)
5 Sub-National Education Spending (%
Total Education)
6 Health Share of Sub-National Spending (%
Sub-National)
7 Sub-National Health Spending (% Total
Health)
formats to
Those interested in annual, country-level
indicators and more details on how the
indicators were calculated are referred to the
World Bank Fiscal Decentralization
Indicators Country Dataset (in Microsoft
Excel).
available in an
array of tabular
and graphical
facilitate global,
regional, and
country level
comparisons.
Revenue Measures
8 Sub-National Grants Share (% Total
Sub-National Revenues)
9 Sub-National Tax Revenue Share (%
Total Sub-National Revenues)
10 Sub-National Nontax Revenue Share (%
Total Sub-National Revenues)
11 Vertical Imbalance
12 Sub-National Own-Source Revenues (%
GDP)
13 Sub-National Own-Source Revenues (%
Total Own-Source Revenues)
14 Sub-National Tax Revenues (% Total
Tax Revenues)
15 Sub-National Property Tax (% GDP)
16 Total Property Tax (% GDP)
Per Capita Measures
17 Per Capita Sub-National Expenditures
(USD)
18 Per Capita Sub-National Revenues
(USD)
Fiscal Decentralization Indicators
August 2004
Selected Summary Figures by Country
Fig.1: Sub-natl. Share of Expenditures by Country
Fig. 2: Sub-natl. Share of Revenues by Country
India (1999)
Argentina (2001)
Tajikistan (2001)
Argentina (2001)
India (1999)
Tajikistan (2001)
Canada (2001)
Australia (1999)
South Africa (2001)
Frm Yugoslavia (1990)
Brazil (1998)
Switzerland (2000)
Spain (1997)
United States (2000)
Bolivia (2001)
Germany (1998)
Mexico (2000)
Austria (1999)
Malaysia (1997)
Peru (2001)
Portugal (1998)
Frm Yugoslavia (1990)
Canada (2001)
Australia (1999)
Brazil (1998)
United States (2000)
Switzerland (2000)
Germany (1998)
Mexico (2000)
Malaysia (1997)
Austria (1999)
Bolivia (2001)
Spain (1997)
Portugal (1998)
Peru (2001)
South Africa (2001)
Netherlands Antilles (1995)
Denmark (2000)
Belarus (2001)
Russian Federation (2001)
Kazakhstan (2000)
Norway (1999)
Finland (1998)
Sweden (1999)
Mongolia (2001)
Georgia (2001)
Poland (2001)
Ireland (1997)
Latvia (2001)
Ukraine (2001)
Iceland (1998)
Moldova (2002)
Hungary (2001)
Estonia (2001)
Italy (1999)
United Kingdom (1998)
Netherlands (1997)
Azerbaijan (1999)
Lithuania (2001)
Czech Republic (2001)
Albania (1998)
France (1997)
Romania (2001)
Bulgaria (2001)
Luxembourg (1997)
Israel (2000)
Zimbabwe (1991)
Thailand (2001)
Croatia (2001)
Slovenia (2001)
Belgium (1998)
Indonesia (1998)
Uruguay (1997)
Nicaragua (1993)
Chile (2001)
Macao (2001)
Slovak Republic (2001)
Senegal (1998)
Mauritius (1999)
Trinidad and Tobago
Costa Rica (1990)
Bahrain (1996)
Dominican Republic (1996)
Paraguay (1993)
Panama (1994)
Congo, Rep. (2000)
Netherlands Antilles (1995)
Kazakhstan (2000)
Belarus (2001)
Denmark (2000)
Georgia (2001)
Russian Federation (2001)
Finland (1998)
Sweden (1999)
Iceland (1998)
Ukraine (2001)
Poland (2001)
Moldova (2002)
Norway (1999)
Latvia (2001)
Lithuania (2001)
Mongolia (2001)
Romania (2001)
Estonia (2001)
Hungary (2001)
Azerbaijan (1999)
Zimbabwe (1991)
Czech Republic (2001)
Italy (1999)
France (1997)
Croatia (2001)
Bulgaria (2001)
Nicaragua (1993)
Luxembourg (1997)
Slovenia (2001)
Netherlands (1997)
Israel (2000)
Thailand (2001)
Chile (2001)
United Kingdom (1998)
Ireland (1997)
Slovak Republic (2001)
Belgium (1998)
Senegal (1999)
Trinidad and Tobago (1995)
Indonesia (1998)
Costa Rica (1990)
Panama (1994)
Macao (2001)
Paraguay (1993)
Bahrain (1996)
Mauritius (1999)
Albania (1998)
Dominican Republic (1996)
State/Province
Local
0
20
Fiscal Decentralization Indicators
40 of Total
60
Share
80
100
State/Province
Local
0
20
40 of Total
60
Share
80
100
August 2004
Summary Figures of Selected, Fiscal Decentralization Indicators by Region
DECENT14: SN Taxes (% Total National Taxes)
DECENT8: SN Grants Share
(% Total SN Revenues)
Region
OECD (21)
SAR (1)
SAR (1)
OECD (21)
MNA (0)
LAC (13)
LAC (8)
ECA (21)
ECA (21)
EAP (5)
EAP (5)
AFR (4)
AFR (4)
0
10
20
30
40
% Regional Average
Fiscal Decentralization Indicators
50
60
0
10
20
% Regional Average
30
40
August 2004
Summary Table of Selected Indicators
SubNational
Education
Health
SubShare of
Share of
SubShare of
National Expenditur
SubSubNational
SubShare of
es (%
National
National Education National
Expenditur Total, Net Expenditur Spending Spending Spending
es (%
Defense &
es (%
(% Sub(% Total
(% SubTotal)
Interest)
GDP)
National) Education) National)
DECENT2
0.5
5.3
7.9
57.8
16
14.8
7.1
23.7
39.3
14.3
26.6
27.7
43.7
20.3
13.3
22.4
28.5
91.6
41.2
31.3
44.4
32.4
23.9
32.6
38.6
20.6
48.8
7.9
12.4
37.7
33.5
54.1
39.5
50.6
8.8
3.4
2.9
26.3
1995
60.6
1993
1994
1993
2001
1995
1997
9.9
2
2.6
25
4.1
11
Bahrain
1996
India
1999
Latin America and the Caribbean
East and Central Asia
East Asia
Africa
0.4
4.7
6.7
49.1
13.7
11.3
7.1
19.1
35.6
12.5
18.7
24.6
41.7
17.3
12.2
21.1
27.2
80.9
35.3
27.5
40.5
30.6
21.6
27.9
35.1
17.9
41.4
7
11.6
33.7
30.2
45.8
34.5
44.5
8
3
2.6
23.1
Middle
East
DECENT1
2000
1999
1998
2001
1991
1998
2001
1997
2001
2001
1998
1999
2001
2001
2001
2001
2001
1990
2001
2001
2000
2001
2001
2002
2001
2001
2001
2001
2001
2001
2001
2001
2001
1998
2001
1990
1996
2000
South
Asia
(year)
Congo, Rep.
Mauritius
Senegal
South Africa
Zimbabwe
Indonesia
Macao
Malaysia
Mongolia
Thailand
Albania
Azerbaijan
Belarus
Bulgaria
Croatia
Czech Republic
Estonia
Frm Yugoslavia
Georgia
Hungary
Kazakhstan
Latvia
Lithuania
Moldova
Poland
Romania
Russian Fed
Slovak Republic
Slovenia
Tajikistan
Ukraine
Argentina
Bolivia
Brazil
Chile
Costa Rica
Dominican Rep
Mexico
Netherlands
Antilles
Nicaragua
Panama
Paraguay
Peru
Trinidad & Tobago
Uruguay
Fiscal Decentralization Indicators
DECENT3
DECENT4
DECENT5
DECENT6
SubSubNational
National
SubHealth
Grants
SubNational
Spending Share (% National Revenues
(% Total Total SN Revenues (% Total
Health) Revenues) (% GDP) Revenues)
DECENT7
DECENT8
DECENT12 DECENT13
0.1
1.2
1.3
15.5
5.1
1.9
0
0
0
2.8
0
0
19.1
6.7
6
9.4
10.1
0
0
13.3
8.6
10.4
0
0
16.1
6.5
0
2.9
5.2
0
0
13.2
11.2
17.7
2
0.8
0.4
0
0
0.9
6.6
0
4.2
4.6
0
0
42.3
0
41.6
60.7
28.2
32.9
10.7
24.3
45.4
15.5
30.3
15.3
30.3
45.5
58.9
43.2
27.9
36.2
16
0.3
25
38.3
25
29.9
31
0
0
0
0
0
0
0.3
2.6
0
0
6.9
0
0
71
0
80.2
84.2
81.8
58.9
15.6
38.9
67.2
0
77.9
34.1
84
72
68.3
76.1
71.8
56.4
82.2
0.2
23
82.4
60.5
80.2
39.4
0
0
0
0
0
0
0
12.9
0
7.5
2.1
0.1
0
21.5
0
8.4
15.6
19.7
9.2
1
1.1
1.4
21.3
6.2
0
19.9
1.6
0.4
23.3
24.9
0.1
10.8
0.6
1.4
15.1
22.9
11.4
12.2
0
0
0
0
0
0
0
23.8
0
0
9.3
0
0
52.8
0
29.5
84.3
78
15.7
0.9
1.5
2.7
0
40.8
0.1
86
4.8
0.6
65.1
93.1
0.2
88.1
0.3
1.2
81.3
81.8
83.2
33.9
0
0
0
0
0
0
63
33.9
81.6
2.3
75
70.3
21.2
46.1
41.1
96.8
50.4
16.8
33.8
5.6
36.7
39.3
14.2
12.4
51.4
13.8
28.1
10.3
26
40.9
10.5
16.5
21.4
21.7
24.5
29.5
0
51.7
38
7.2
14.2
8.6
47.1
0
0.5
1.1
2.9
4.5
0.5
0
0
0
1.7
0
0
16.5
4.6
5.5
5.8
6
0
0
7
9.9
6.8
0
0
9.5
5.8
0
2.3
4.2
0
0
9.4
5.6
12.2
1.9
0.7
0.1
0
0
2
6
9.6
14.8
3.1
2.4
15.2
19.7
8.7
1.2
15.1
36.2
12.1
12.4
14.6
16.1
78.1
33.1
15.8
45.9
20.7
19.7
23.4
23.4
17.7
32.6
6.5
9.7
27.1
24.2
40.6
24.3
32
7.7
3
0.8
23.6
62.4
0
19.6
75.3
3.9
39
0
0
62
12.4
2.3
3.1
28.1
5.1
11.9
3.1
0.5
0.4
4.9
1.2
3.7
0
0.5
7.5
0
0
0
0
0.1
0.9
0
0
0
0
0.3
16.1
0
0
0
0
0
5.6
0
0
0
1.7
0
0
73.4
0
0
2.6
0.7
0.3
1.4
1.3
0
10.1
2.5
2.3
8.3
4.2
0
2.8
3.6
0.7
0
0
0
0
0
0.6
2.3
52
73.1
12.5
27
89.4
6.1
73.4
39
6.2
33.6
August 2004