Transcript Reforms in Intergovernmental Fiscal Relations in the

WB Work on Decentralization in ECA
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72 active projects, studies involving decentralization, local
government, urban, rural, or community development
57 multisectoral DPLs since 2000, many of which have IGR
components
PEIRs also address decentralization, intergovernmental issues
Project lending focuses on the grass roots or specific
municipalities
PROJECT NAME
COUNTRY
Rural Investment Project (AZRIP)
Azerbaijan
Rural Development Project
Georgia
Rural Investment & Services Project (APL #2)
Moldova
Post-Accession Rural Support Project
Poland
Rural Development Project (APL #1)
Romania
Rural Infrastructure Rehabilitation Project
Tajikistan
Community Works 2 Project
Albania
Community Development Project
Bosnia and Herzegovina
COMMUNITY DEV SUPPLMT
Bosnia and Herzegovina
Community Development Fund 2 Project
Kosovo
Municipal Development & Decentralization 2 Project
Georgia
Municipal Services Project
Turkey
Municipal Water and Wastewater Project
Armenia
Urban Infrastructure & Service Delivery Project
Bosnia and Herzegovina
Municipal Environmental Infrastructure Project
Croatia
MUNICIPAL SERVICES PROJECT
Romania
Municipal Infrastructure Development Project
Tajikistan
Fiscal Decentralization IDF Grant
Albania
Local Government Capacity Building Grant to Implement Intergovernmental Fiscal
Reforms
Kyrgyz Republic
Major Issues in IGR in ECA Countries
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Correspondence: finance follows function
Transparency and predictability
Equity
Macroeconomic control
Incentives for efficiency
Before Reform
• Local governments had broad
responsibilities: public utilities, education,
health
• No political autonomy
• Resources based on norms, negotiations
The Transition (1)
• Local governments
became legally
independent
• Existing
organizational
structure maintained
or even further
fragmented
Avg. Population of Municipalities
France
Czech Rep.
Sw itzerland
Hungary
Austria
Spain
Latvia
Germany
Estonia
Italy
Norw ay
Finland
Poland
Belgium
Denmark
Netherlands
Sw eden
Serbia
Georgia
Lithuania
Great Britain
0
20000
40000
60000
80000
100000
120000
140000
The Transition (2)
• Multi-party elections held
• Some countries centralize social sectors
• But most leave existing local functions
intact and
• Search for new ways to finance them
The New Revenue Structure
• Very little local taxing power
• Most revenues from shares of national taxes,
intergovernmental transfers
Figure II.2 Structure of Local Government Revenues as % of GDP
Slovak Republic 2000
Slovenia 2002
Taxes on Property
Lithuania 2002
Taxes on Income
Estonia 2001
Other Taxes
Latvia 2002
Grants
Czech Republic 2002
Other Revenues
Hungary 2002
Poland 2002
0%
2%
4%
6%
8%
10%
12%
14%
16%
Intergovernmental Transfers
• New systems distinguish ‘local’ from
‘delegated’ functions, with separate
funding for each
• Local functions: water supply, sewerage,
SWM, roads, planning, land use
• Delegated functions: education, health,
social assistance
Local Functions
• Financed from shares of PIT, non-earmarked transfers
• Shares of PIT vary
Municipal Share of PIT
Georgia
Slovakia
Latvia
Estonia
Lithuania
Hungary
Slovenia
Poland
Czech Rep.
0%
20%
40%
60%
80%
100%
120%
Criteria for Equalization
• Revenues per capita
• Expenditure needs
– Land area
– Road length
– School aged children
– Hungarianism
Financing Education
Declines in enrollment in rural schools prompt shift
in financing
Old system: based on facilities, teachers
New system: based on enrollment
• Equitable: equalizes spending per pupil
• Encourages efficiency:
– Cuts spending in under enrolled schools
– Gives school directors budget autonomy
But…
• Controversial, because schools closed,
teachers dismissed
• Governments respond by:
– Adjusting formula to reduce immediate
impacts
– Improving surviving schools
Health
• High costs, inefficiency in health care
prompt changes in financing
• Governments respond by:
– Dividing primary form secondary health
care
– Introducing capitation financing for
primary care
But..
• Attempts to introduce performance criteria
into primary care financing not successful
• Performance criteria for secondary health
care even less so
Are reforms successful?
Local Expenditures as % GDP
objective
status
correspondence
Ongoing debate
over adequacy of
transfers
transparency
Yes, but some
more than others
equity
Yes, but some
more than other
macro control
Yes, although
threat of arrears,
borrowing
efficiency
Yes in education;
less so in health
HU
CZ
general public
PO
public order
ec affairs
SV
transport
LI
environment
LT
housing
health
ES
recreation
SK
education
GE
social protection
SB
0.0%
5.0%
10.0%
15.0%