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Fiscal imbalance
About: Fiscal imbalance is a research topic. Over the lifetime, 1894 publications have been published within this topic receiving 41895 citations.
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TL;DR: This paper investigated the relationship between provincial government's fiscal incentives and provincial market development and found that stronger ex ante fiscal incentives, measured by the contractual marginal retention rate of the provincial government in its budgetary revenue, are associated with faster development of the non-state sector as well as more reforms in the state sector in the provincial economy.
1,017 citations
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TL;DR: Zhang et al. as mentioned in this paper found that the 15 years of efforts to promote decentralization in China have failed to promote economic growth in China's provinces, which is surprising in the light of arguments that fiscal decentralization usually promotes provincial or local economic growth.
Abstract: Fifteen years of efforts to promote fiscal decentralization in China have failed to promote economic growth in China's provinces. This finding is surprising in the light of arguments that fiscal decentralization usually promotes provincial or local economic growth. Zhang and Zou use data on China to demonstrate how the allocation of fiscal revenue and expenditures between central and local governments has affected economic growth since reforms that began in the last 1970s. They find a higher degree of fiscal decentralization associated with lower provincial economic growth over the past 15 years in China. This implies that fiscal reforms begun in China in the early 1980s have probably failed to promote the country's economic growth. This result is consistently significant and robust in their empirical examinations. It is also surprising, in the light of the argument that fiscal decentralization usually contributes positively to provincial or local economic growth. This paper - a product of the Public Economics Division, Policy Research Department - is part of a larger effort in the department to study fiscal decentralization and economic growth. The study was funded by the Bank's Research Support Budget under the research project Fiscal Decentralization and Economic Growth (RPO 680-02).
750 citations
TL;DR: Alesina and Perotti as discussed by the authors showed that large fiscal expansions typically occur through increases in expenditure, while large fiscal adjustments rely on tax increases, and that permanent improvements in the fiscal balance crucially differ from fiscal adjustments that lead to a temporary improvement and are reversed in a short time.
Abstract: Fiscal adjustments
Fiscal expansions and adjustments in OECD countries
In several countries policy-makers are striving to improve the budget balance, which can be done either by raising taxes or by cutting expenditures. But the two strategies are not equivalent. Drawing on the experience of twenty OECD countries after 1960, this article shows that large fiscal expansions typically occur through increases in expenditure, while large fiscal adjustments rely on tax increases. It also appears that permanent improvements in the fiscal balance crucially differ from fiscal adjustments that lead to a temporary improvement and are reversed in a short time. Permanent improvements are implemented mainly via cuts in two types of expenditure: transfer programmes and compensation of government employees. Temporary improvements are carried out almost exclusively via tax increases. Finally, coalition governments may often try to make substantial fiscal adjustments, but they are much less likely than others to carry out the two types of expenditure cut that make an adjustment successful. These findings convey a clear message: the composition of a fiscal adjustment is of fundamental importance in determining its success. A fiscal adjustment cannot have long-lasting effects unless it tackles two expenditures – government employment and social programmes – often regarded as untouchable by policy-makers and their advisers.
— Alberto Alesina and Roberto Perotti
733 citations
TL;DR: In this article, the authors developed an optimal fiscal policy model in which running budget surpluses is costly because they create pressures to increase public spending, and they showed that a government that faces large fluctuations in the tax base will find it optimal to run a procyclical fiscal policy.
699 citations
565 citations