What Is Fiscal Decentralization?

The government system of almost any country is divided into several levels. The coordinated development of the regional economy through the distribution of power is an important goal of the central government. Fiscal decentralization refers to the scope of tax power and expenditure responsibilities granted to local governments, and allows It independently determines the size and structure of budget expenditures, so that local governments at the grassroots level can freely choose the type of policies they need and actively participate in social management. The result is that local governments can provide more and better services. The theory of fiscal decentralization has not only received widespread attention in developed countries, but many developing countries also regard fiscal decentralization as an important means to break the shackles of central planning and embark on the path of self-sustained growth.

Fiscal decentralization

Right!

The government system of almost any country is divided into several levels. The coordinated development of the regional economy through the distribution of power is an important goal of the central government. Fiscal decentralization refers to the scope of tax power and expenditure responsibilities granted to local governments, and allows It independently determines the size and structure of budget expenditures, so that local governments at the grassroots level can freely choose the type of policies they need and actively participate in social management. The result is that local governments can provide more and better services. The theory of fiscal decentralization has not only received widespread attention in developed countries, but many developing countries also regard fiscal decentralization as an important means to break the shackles of central planning and embark on the path of self-sustained growth.

Chinese name

Musgrave

Foreign name

Musgrave

Musgrave's Thought of Decentralization

Musgrave (1959) analyzed the rationality and necessity of the existence of central and local governments by examining the three major functions of finance. He believed that the functions of macroeconomic stability and income redistribution should be the responsibility of the central government. The lack of adequate financial resources for the implementation of macroeconomic stability control. In addition, the liquidity of economic entities has severely constrained local governments' attempts to redistribute income. The resource allocation policies should vary according to the preferences of local residents. The government is more suitable than the central government and is more conducive to the improvement of economic efficiency and the improvement of social welfare. He also pointed out that in terms of the efficiency of the supply of public goods and the realization of the fairness of distribution, the necessary decentralization between the central and local governments is feasible, and this decentralization can be fixed through the distribution of taxes at various levels of government to give local governments Relatively independent power of government.

Oates's Decentralization Theorem

In his book "Financial Federalism" (1972), Oates proposed the comparative advantage of decentralized provision of public goods through a series of assumptions, namely Oates' "decentralization theorem": for a public good, Consumption involves a subset of all populations in all regions, and the unit supply cost of the public good is the same for the central and local governments, so let local governments provide a Pareto-effective output to their respective voters. It is always more efficient than any specific and consistent output provided by the central government to all voters. Because compared to the central government, local governments are closer to their own public and better aware of the utility and needs of voters in their jurisdictions. In other words, if the lower level government can provide the same public goods as the higher level government, then the lower level government will be more efficient.