Fiscal Rules, Decentralization and Public Finances: Making Sense of Balanced Budget Requirements for Sub-National Governments

19 Pages Posted: 14 Dec 2012

See all articles by Jan Seifert

Jan Seifert

German Institute of Global and Area Studies (GIGA); National University of Singapore (NUS) - Lee Kuan Yew School of Public Policy

Date Written: December 2012

Abstract

This paper reviews the debate over fiscal rules and specifically balanced-budget requirements with regards to sub-national (state/regional) government. It will be argued that fiscal rules, if properly designed, can play an important role in balancing the relations between central and sub-national governments and build a healthy system of public finances in the long-run. Fiscal rules are required to limit the subsidiarity challenge that decentralizing governments face: How can they balance the need for locally delivered public services with a fair and sufficient financial endowment while at the same time incentivizing sub-national governments not to overspent their general resources?

This paper analyzes global experiences with some of the strictest forms of fiscal policy rules - i.e. balanced-budget requirements (BBR). It will discuss and illustrate their relevance in the context of three major Asian economies with very different fiscal positions - China, India and Indonesia - but similar demands or requirements for the decentralization of public services due to their vast populations and geographical size.

Keywords: H61, H62, H74, H77

JEL Classification: public finance, fiscal rules, decentralization, balance-budget requirements, Indonesia, China, India

Suggested Citation

Seifert, Jan, Fiscal Rules, Decentralization and Public Finances: Making Sense of Balanced Budget Requirements for Sub-National Governments (December 2012). Lee Kuan Yew School of Public Policy Research Paper No. 12-19. Available at SSRN: https://ssrn.com/abstract=2189218 or http://dx.doi.org/10.2139/ssrn.2189218

Jan Seifert (Contact Author)

German Institute of Global and Area Studies (GIGA) ( email )

Neuer Jungfernstieg 21
Hamburg, DE 20354

HOME PAGE: http://www.giga-hamburg.de/en/team/seifert

National University of Singapore (NUS) - Lee Kuan Yew School of Public Policy ( email )

Singapore 117591
Singapore

Register to save articles to
your library

Register

Paper statistics

Downloads
176
Abstract Views
730
rank
170,770
PlumX Metrics