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Framework for Expenditure Assignment

This framework outlines the principles of expenditure assignment and decentralization in intergovernmental fiscal reform, emphasizing the impact of design on government services like health, education, and infrastructure. It examines macroeconomic stability, equity in fiscal equalization, and efficiency in local service provision, addressing common problems such as unclear sector delineation and lack of coordination. The role of fiscal decentralization in poverty reduction strategies is highlighted, stressing the importance of understanding local needs and promoting accountability at all government levels.

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Framework for Expenditure Assignment

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  1. Framework for Expenditure Assignment Decentralization and Intergovernmental Fiscal Reform 24 March 2003 Dana WeistPRMPS

  2. Design Determines Impact • Expenditures = government services • Design affects availability, quality, access and appropriate use of public services e.g. health, education, water, roads etc. • Can ultimately affect macroeconomic stability

  3. Macroeconomic Stability • Key factor is “hard budget constraint” • Creates incentives for subnational fiscal discipline • Limits risk of central government • Can be “softened” through several channels (intergovernmental fiscal system, financial system, SOEs etc.)

  4. Equity • Extent of fiscal equalization • Ways and means for targeting poor places and poor people

  5. Efficiency • Considerations for assignment: public goods, externalities, subsidiarity, economies of scale, public sector competition • Do local services respond to local needs? • Do citizens have meaningful opportunities for voice? • Do officials face incentives to respond?

  6. Common Problems • Unclear delineation between public and private sectors • Lack of formal assignment • Concurrent assignment among levels of government • No mechanisms for coordination and conflict resolution • Inefficient assignments

  7. Decentralization of Functions • Organization • Planning • Personnel • Infrastructure • Resources • Regulation

  8. Poverty Reduction Strategies • Elements of a successful anti-poverty strategy • Identify the poor • Understand reasons and factors that lead to poverty • Design a set of policies (e.g. PRS) • Cost-effective implementation • Fiscal decentralization as a key to policy design and effectiveness

  9. Poverty Reduction Strategy (PRS) • Proximity to target group • Identify beneficiaries and willingness to pay • Distribution policy becomes intergovernmental • Economies of place

  10. Poverty Reduction Roles • Policy interventions in a unitary system • Multi-level fiscal systems • Fiscal decentralization and service delivery • Intergovernmental transfers • Local participation and accountability

  11. Key Points • Ultimately, no single best assignment • Ideally, services should be provided at lowest level of government where benefits lie • Public provision doesn’t imply public production • Clarity is critically important

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