Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Regional Economy: The Case of Decentralization Arti Adji Experience of the NIE (1) Level of public spending in NIE (18% of GDP) < in industrialized countries (40% of GDP). Industrialized countries: Keynesianism and creating welfare state. NIE: small government and rely on market and economic incentives. Experience of the NIE (2) Korea: most interventionist but keep public spending under tight control. Hongkong: non-interventionist, provide public services and economic infrastructure. Singapore: good governance: rule of law, property right, fair commercial practices. Emphasis in NIE: human capital formation with govt take role in providing education and health for the poor. Composition: 1/3 consumption, 1/3 subsidies and transfers, 1/3 interest payments and govt investment. Experience of the NIE (3) NIE experience impressive growth rate due to high rate of gross fixed capital formation (30% of GDP). Public investment: 3% of GDP (10% of total investment). High savings rates (Korea: 35% of GDP). Private investment has been driving economic growth. Seldom experience budget deficits. Indonesia (1) Over the past 10 years, there has been a remarkable transformation in the way public resources are managed and allocated. 1997-8. The economic crisis. The economy contracted, public spending fell. Debt and subsidies increased while development spending declined. 2001. Big bang decentralization. 1/3 of central govt expenditure was transferred to the regions. 2006. An extra US$15 billion to spend. The reduction in fuel subsidies opened up space for additional spending, debt levels dropped below 40% of GDP, aggregate expenditure increased by 20 percent and transfers to sub-national governments grew by 28%. Indonesia (2) Provinces and local govt manage 40% of total public expenditures and carry out > 50% of public investment. Total govt debt fell < 40% of GDP by the end of 2006. Spending on subsidies and administration: 1/3 of total expenditures. Subsidies: 15% of budget. Public infrastructure = 3.4% GDP (never recovered from post-crisis low level. Public investment has recovered and returned to the pre-crisis level of 7%; sub-national governments now manage half of Indonesia’s public investment. Four Pillars of Decentralization Tax Assignment Expenditure Assignment Intergovernmental Transfers Regional Borrowings Tax Assignment 1. 2. 3. 4. 5. 6. Definition: allocation of tax responsibilities among multiple tiers of government. Principles: progressive redistributive tax should be centralised; taxes suitable for economic stabilisation should be centralised; unequal tax bases between jurisdictions should be centralised; taxes on mobile factors of production should be centralised; residence-based taxes, such as excise, should be levied by states; taxes on completely immobile factors should be levied by regional authorities; benefit taxes and user charges can be levied appropriately by all levels US Tax Assignment United States has a decentralised tax administration with each federal, state, and regional government having its own tax administration to collect the taxes it imposes. There is piggyback system: the federal government collects income tax and then gives a fixed 10 per cent of that yield to regional government. Japan Tax Assignment Taxes are the greatest source of regional revenue in Japan: about 35 per cent, which is about three times the proportion of regional taxes in the case of Indonesian regionals. Regional governments do have some flexibility with certain taxes, provided that these are approved either formally or informally by the central Japanese government. What Indonesia can learn from this is how to structure the tax system in a manner that gives regional governments the capacity to raise a greater proportion of total revenue from regional taxes. And as the Japanese case shows, this can be done in a way that is flexible and involves the central government as a monitor and ultimate authority. Australia Tax Assignment The Commonwealth Government controls the major highyielding taxes: personal income tax, customs and excise duties, company income tax, and sales tax. It left only low-yielding smaller revenue sources for state and municipal governments. Australia espouses the principal of complete separation of the tax base for different levels of government. In Indonesia, by contrast, the central government has dominated the tax system by monopolising all the high-yielding tax sources. There are annual meetings of the state Premiers with the Prime Minister to discuss the fiscal formula used to allocate centrallycollected taxes back to the state governments. This provides the state governments with the chance to plead their case for altering the formula on a regular basis. Argentina Tax Assignment The federal government collects the main taxes such as income tax, value added tax, excise taxes, foreign trade taxes, liquid fuel and energy taxes, gross assets tax, social security taxes, and a number of minor levies. Provincial and municipal governments collect real estate tax, automobile tax, road taxes and the provincial turnover tax. Provincial tax collection represents about 45 per cent of total provincial government revenue. Expenditure Assignment Definition: allocation of responsibilities for expenditure between multiple tiers of governments. The effectiveness of expenditure assignments can be judged by the following criteria: economic efficiency, fiscal equity, political accountability and administrative effectiveness. US Expenditure Assignment The federal government is responsible for national defence and public welfare spending. State governments are responsible for transportation, public works, public welfare and higher education. Regional governments provide basic goods and services, primary and secondary education, and police and fire services. The distribution of function in the United States is very clear-cut. There is no overlap. In the Indonesian case, bureaucratic confusion has become exacerbated after the reforms owing to the lack of functional clarity and the many overlapping areas of responsibility. Australia Tax Assignment The federal government is in charge of social security and welfare and some health spending. State governments finance non-tertiary education, other health services, housing and community amenities, law and order, and public safety, transport and communications, and social services. Municipal government is responsible for the provision of transport services, recreational and cultural facilities, and some housing and community services. These are financed by fines, including traffic and parking fines. Tiebout Model Market generally fails to provide public goods efficiently since market does not force individuals to reveal their true preferences for public goods; everyone has an incentive to free-ride; therefore government intervention is required. Tiebout suggests that the ability of individuals to move among jurisdictions produces a market-like solution to the Tiebout Model Cont’d Assumptions: Government activities generate no externalities. Individuals are completely mobile. People have perfect information with respect to each community’s public services and taxes. There are enough different communities so that each individual can find one with public services meeting her demands. The cost per unit of public services is constant, so that if the quantity of public services doubles, the total cost also doubles. Public services are financed by a proportional property tax. Communities can enact exclusionary zoning laws— Optimal Federalism Disadvantages of Decentralized System: Efficiency Issues: Externalities Scale economies in provision of public goods. Inefficient tax systems. Scale economies in tax collection. Optimal Federalism Cont’d Equity Issue: Due to “vote with your feet”, redistributive program can be abandoned. Advantages of Decentralized System: Tailoring Outputs to Local Tastes. Fostering Intergovernment Competition. Experimentation and Innovation in Locally Provided Goods and Services.