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Show 7 1.1.1 . Economics of Decentralization and Fiscal Federalism The literature on decentralization, traditionally known and crosscuts over the boundaries of theory (Budd et al. 1999).1 The decentralization sees public finance, political public an as as fiscal federalism, is vast science and organizational finance literature assignment issue-a question of dividing responsibilities among levels of government and allocating corresponding revenue sources. Local politics, in this model, serve to functional in local 'clear the market' confronted with a menu public goods Citizens and services: are of alternative combinations of services and tax express their preferences through the ballot box. But this model assumes that all citizens have equal access to the political process levels and and that can politicians act simply as the agents of voters. (Burki et al. 1999, p. 17)2 The literature of efficiency justifies gains. decentralization of public service The traditional provided by Musgrave and Oates theory builds (Musso 1998; on provisions primarily the normative probably Brennan and Hamlin the best-known normative framework for the grounds conceptual framework3 1998; Burki 1999; Oates 1999; Tresch 2002). Musgrave's simple typology of public is on analysis of the et al. sector functions implications of "Beginning from roots in the traditional analysis of public finance, fiscal incorporated aspects of the theory of externalities and public goods, the theory of clubs, the of optimal taxation, public choice theory, economic geography and international economics" theory (Brennan and Hamlin 1998, p. 144). IBrennan and Hamlin further add: federalism has 2"Political science takes a more jaundiced view of the political process. It sees politics as a device for mediating conflict among interest groups, and it takes a more complex view of the motivations of politicians. It explains the behavior of politicians as the pursuit of political power and emphasizes the role of key constituencies and party leadership in determining the rate of advancement in political career Organizational theory calls attention to the problem of incentives and the difficulties that arise when one local politicians-to act on their behalf. group-say, local politicians-must rely on another-say, the of interests the Conflicts can arise because 'principals,' differ from those of their 'agents' the taxpayers, are difficult to monitor, the interests of the and information have When privileged agents politicians. to overcome this problem, by proposing ways in can thwarted. be attempts theory Organizational principals which the interests of principals and agents can be made compatible." (Burki et al. 1999, p. 17) .... 3"In terms of positive social science, fiscal federalism models predict the effect of fiscal arrangements on expenditure and revenue choices at the various levels of government. From a normative perspective they evaluate the implications of federal fmancial arrangements on the stability of the economy, the efficiency of resource allocation, and the fairness of the income distribution." (Musso 1998, p. 50) |
