Public Services and Expenditure Need Equalization: Reflections on Principles and Worldwide Comparative Practices

Anwar Shah

World Bank

March 1, 2012

World Bank Policy Research Working Paper No. 6006

This paper reviews the conceptual challenges as well as lessons from worldwide experiences in implementing public services and expenditure need compensation in fiscal equalization transfers with a view to developing guidance for practitioners. The paper concludes that while in theory a strong case for a comprehensive fiscal equalization can be made, in practice fiscal need equalization as part of a comprehensive equalization program introduces significant complexity. This works against the simplicity, transparency and general acceptability of the program. This does not imply that fiscal need equalization should be abandoned in the interest of simplicity and transparency. Instead simplicity, transparency and local autonomy are preserved by having fiscal need equalization through public service oriented (specific purpose block transfers) output based fiscal transfers that impose no spending requirements for any functions or objects of expenditures. Such transfers contrast with traditional earmarked transfers, which impose conditions on spending for specific purposes or objects of expenditure and subsequent verification/certification of such expenditures. Such output-based block transfers would further enhance citizen based accountability for results and thereby offer potential for enhancing public confidence and trust in government operations.

Number of Pages in PDF File: 37

Keywords: Subnational Economic Development, Banks & Banking Reform, Public Sector Economics, Access to Finance, Municipal Financial Management

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Date posted: April 20, 2016  

Suggested Citation

Shah, Anwar, Public Services and Expenditure Need Equalization: Reflections on Principles and Worldwide Comparative Practices (March 1, 2012). World Bank Policy Research Working Paper No. 6006. Available at SSRN: http://ssrn.com/abstract=2026810

Contact Information

Anwar Shah (Contact Author)
World Bank ( email )
1818 H Street, N.W.
Washington, DC 20433
United States
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