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Centralized or decentralized financing of local governments? Consequences for efficiency and inequality of service provision

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  • Lars-Erik Borge

    (Department of Economics and Centre for Economic Research, Norwegian University of Science and Technology)

Abstract

Compared with most countries the Norwegian system of financing local governments is highly centralized. Grants make up a substantial part of revenues and local taxes are highly regulated by the center. The development of the system was motivated by a desire to equalize service provision throughout the country. The purpose of this paper is to analyze possible consequences of more decentralized financing with local tax discretion. Contrary to the conventional wisdom the analysis indicates that decentralized financing is likely to give more equal provision of local public services. In addition, substantial efficiency gains can be obtained.

Suggested Citation

  • Lars-Erik Borge, 2006. "Centralized or decentralized financing of local governments? Consequences for efficiency and inequality of service provision," Working Paper Series 7806, Department of Economics, Norwegian University of Science and Technology.
    • Handle: RePEc:nst:samfok:7806
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    File URL: http://www.svt.ntnu.no/iso/WP/2006/14efftap_wp.pdf
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    References listed on IDEAS

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    Cited by:

    1. Borge, Lars-Erik & Hopland, Arnt O., 2020. "Less fiscal oversight, more adjustment," European Journal of Political Economy, Elsevier, vol. 63(C).
    2. Ms. Izabela Karpowicz, 2012. "Narrowing Vertical Fiscal Imbalances in Four European Countries," IMF Working Papers 2012/091, International Monetary Fund.

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    More about this item

    Keywords

    Centralized financing; Decentralized financing; Tax discretion; Efficiency gains; Equalization;
    All these keywords.

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures

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