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Frameworks for Central–Local Government Relations and Fiscal Sustainability

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  • Morgan, Peter

    (Asian Development Bank Institute)

  • Trinh, Long Q.

    (Asian Development Bank Institute)

Abstract

Sustainable and inclusive growth in emerging Asian economies requires continued high levels of public sector investment in areas such as infrastructure, education, health, and social services. These responsibilities, especially with regard to infrastructure investment, need to be devolved increasingly to the regional government level. However, growth of sources of revenue and financing for local governments has not necessarily kept pace, forcing them, in some cases, to increase borrowing or cut spending below needed levels. This paper reviews alternative models of the relationship between central and local governments, and provides an overview and assessment of different financing mechanisms for local governments, including tax revenues, central government transfers, bank loans, and bond issuance, with a focus on the context of emerging Asian economies. The paper also reviews financing mechanisms for local governments and mechanisms for maintaining fiscal stability and sustainability at both the central and local government levels. Based upon the evidence on the decentralization process in Asia, it proposes some policy implications for improving central-local government relations and fiscal sustainability.

Suggested Citation

  • Morgan, Peter & Trinh, Long Q., 2016. "Frameworks for Central–Local Government Relations and Fiscal Sustainability," ADBI Working Papers 605, Asian Development Bank Institute.
    • Handle: RePEc:ris:adbiwp:0605
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    References listed on IDEAS

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    4. Lili Liu, 2010. "Strengthening Subnational Debt Financing and Managing Risks," World Bank Publications - Reports 19471, The World Bank Group.
    5. Jorge Martinez-Vazquez & Cristian Sepulveda, 2012. "Intergovernmental transfers: a policy reform perspective," Chapters, in: Giorgio Brosio & Juan P. Jiménez (ed.), Decentralization and Reform in Latin America, chapter 9, pages iii-iii, Edward Elgar Publishing.
    6. Brian E. Dollery & Joseph Garcea & Edward C. LeSage Jr (ed.), 2008. "Local Government Reform," Books, Edward Elgar Publishing, number 12592.
    7. Liu, Lili & Pradelli, Juan, 2012. "Financing infrastructure and monitoring fiscal risks at the subnational level," Policy Research Working Paper Series 6069, The World Bank.
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    Cited by:

    1. Li, Tianyu & Du, Tongwei, 2021. "Vertical fiscal imbalance, transfer payments, and fiscal sustainability of local governments in China," International Review of Economics & Finance, Elsevier, vol. 74(C), pages 392-404.

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    More about this item

    Keywords

    Government decentralization; government fiscal balance; intra-government transfers; expenditure assignment; revenue assignment; local government borrowing; mechanisms for fiscal stability;
    All these keywords.

    JEL classification:

    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
    • 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
    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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