Kasirim Nwuke

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Fine-tuning Inter-governmental transfer system to
support progress towards the MDGs

• Kasirim Nwuke
• Chief, MDGs/Poverty Analysis Monitoring
• United Nations Economic Commission for Africa
• Addis Ababa, Ethiopia

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OUTLINE

• The System of transfers
• General purpose transfers
• Specific Purpose Transfers
• Designing Fiscal Transfers
• Shortcomings of current systems
• Recommendations

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The System of Transfers

Central Government
Second-tier government
Third tier government
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System of Transfers (2) Types of Transfers

• General Purpose
• Revenue Sharing (sharing of income from
  jointly-owned assets and/or factors)
• Tax Rebates
• Equalization transfers (to bridge fiscal gaps)
• Specific Purpose
• Grants to support wage increases to civil
  servants
• Grants to historically disadvantaged regions
• Ecological grants
• Ad hoc transfers

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Evidence of Impact of IG Transfers in Africa

• Mostly anecdotal sound empirical analysis
  lacking.
• In other countries (China), negative correlation
  observed between equalization transfers (ET)and
  SNJ output and per capita revenues and positive
  correlation btw ET and SNJ expenditure very
  little impact on inequality

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Designing IG Fiscal Transfers

• Design is extremely important for SNJs and for
  the fiscal and political health of countries
• Shah (1994) recommends the following criteria

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The Shah Criteria

• Autonomy of action by SNJ
• SNJs should have adequate revenue
• Equity funds should vary with needs
• Predictability
• Efficiency neutral to choice of action by SNJs
• Simple
• Incentives for sound fiscal management
• In the Case of Specific Purpose Grants
• Accountability
• Focus

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Lessons from International Experience

• Positive

• Negative

• Keep it simple
• Focus on objective
• Introduce sunset clauses
• Fiscal equalization should focus on per capita
  fiscal capacity and up to a standard
• Equalization of fiscal need should be achieved
  through output per capita (in terms of services,
  HDI etc)
• In terms of specific purpose grants, establish
  conditionality on outputs or standards rather
  than on processes or inputs
• Listen to all stakeholders

• General revenue sharing undermines accountability
• Grants to SNJs to finance deficits creating
  incentives for future deficits
• Avoid use of fiscal effort by SNJ as a criterion
• Avoid Ad hoc conditional grants they undermine
  autonomy, fiscal efficiency and fiscal equity
• Avoid discretionary grants they create tension
  and dissension

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• SUMMARY THUS FAR

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Proposals for Fine-tuning IGFT to support the
Achievement of the MDGs

• SNJs as Principals
• Greater coordination through joint planning
  exercises
• Information, Communication and education
• Closing the fiscal gap
• Possible constitutional reform for greater
  clarity in assignment of revenues and
  expenditures
• SNJs as agents
• Specific targeting of MDGs especially those that
  have the characteristics of a regional public
  communicable diseases environmental, and even
  MDG 1 (in the context of high inter-jurisdictional
  mobility)
• Preference revelation through application for
  funds
• Set standards for reporting, monitoring and
  evaluation

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• THANK YOU
• And visit us _at_
• www.uneca.org
• www,uneca.org/prsp