Jorge ferreira (p), Alexandre Alves

Aurélie Cassette

This study analyzes the elections’ timing and its effects in the formulation of municipal policies, dividing them into two categories: the short-term and the long-term focus policies. Employing the instruments provided by Game Theory, we built a dynamic set of eight periods with imperfect information, in which two players (local and central policymakers) decide about the budget formulation policy, oriented to maximize next elections results. We analyze two models: first, we discuss a staggered election model, in which elections occur every two years, alternately, to local and central government layers). The second model explores the possibility of unification of local and central elections, in a synchronized way with the coincidence of mandates of the studied politicians (local and central governments). Results suggest that the vote-seeking behavior drives to sub-optimal allocations in both models, in a kind of anticipation effect. However, we highlight differences among incumbents’ anticipation effect: its intensity is higher in local allocations than in central ones, because central expenditures increase local incumbent’s image more than the opposite. Moreover, in synchronized elections, the deviation from optimal allocation would be lower than in staggered ones.

Willem Sas (p), David Bell

Olga Diukanova

The ways in which countries have organised the financing of public goods and services provided by lower-level governments, are highly complex. They are often regarded as unfair, opaque or ineffective, and tend to lack legitimacy as a result. This paper therefore explores a set of transparent and intuitive guidelines to design a new fiscal framework for regional public finance. It builds these from a set of principles rather than an ad hoc process dictated by political expediency. It also recognises that any fiscal arrangement will be subject to a participation constraint. Thus it accounts for the possibility that one or more regions may leave the federation, given sufficient popular support. To offset this possibility, and within certain bounds, our framework allows subnational jurisdictions to unilaterally decide how much tax autonomy and fiscal responsibility to adopt. Our paper therefore offers a fresh perspective on subnational public finance.

Olga Diukanova (p)

Jorge Ferreira

There is considerable momentum in the world towards increasing the degree of fiscal decentralization. Central governments have greater revenue raising power over the subnational governments, while the latter have advantages in providing place-tailored public services.
Although, fiscal decentralisation brings about efficiency gains in the provision of public services, intergovernmental transfers still play an important redistribution role.
An important rationale for intergovernmental transfers is equalization of citizens' access to public services. Given that regions differ in revenue-raising capacities, costs and needs for government services, intergovernmental transfers can be discretionary in nature. Central governments distribute a number of earmarked grants to guarantee provision of particular services in a region, particularly health and education.
Nowadays many countries decentralize asymmetrically, predominantly on the expenditure side. According to Rodden (2003), Jack (2004), and Rodríguez-Pose et al. (2009) the effectiveness of fiscal reform depends on expenditure decentralization being accompanied by decentralization of fiscal powers, rather than bridging the revenue-expenditure gap with intergovernmental transfers.
Of economic questions which arise in connection with fiscal decentralization possibly the most prominent are those relating to the equalization of the access to public services and to the design and the size of intergovernmental transfers.
Although, the existing research on fiscal decentralization is mainly qualitative, we aim to bridge this gap by evaluating the economic impacts of horizontal and vertical fiscal equalization on the pattern of regional convergence, using a dynamic multi-regional dynamic CGE model RHOMOLO.
We contrast the scenario of equalization of regional per-capita provision of public services (horizontal equalization) with the scenario of equalization of regional tax raising capacity (vertical decentralization).
Under the first scenario intergovernmental transfers are distributed inversely proportionally to the regional public expenditures in order to equalize over time the per-capita provision of public services within each country.
Under the second scenario, the regional fiscal power is gradually increased to cover 80% of regional public services, leaving the rest of 20% to be covered with earmarked intergovernmetnal grants.
In other words, the first scenario investigates the outcomes of decentralizing exclusively on the expenditure side, while the second scenario verifies the Oates’ hypothesis (1972) according to which a close match between spending assignments and revenue discretion at subnational levels maximizes the efficiency gains of decentralization.

Aurélie Cassette (p), Etienne Farvaque

Willem Sas

This paper studies the determinants of the decision to go back from an adopted reform.
We use the quasi-natural experiment of the changes in the school week schedule in
France. The government first offered the municipalities to implement quickly or
further in time a reform of the school schedule, and then - 4 years later - offered the
possibility to come back to the pre-reform schedule. Our results are based on a unique,
very detailed, database of school-week schedules. They indicate that, even if there is a
strong level of path dependency in policy decisions, political and budgetary variables
are fundamental in explaining backtracking decisions.