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In many countries, the state owns or manages forests in the national interests of economic development, ecosystem service provision or biodiversity conservation. A national approach to reducing deforestation and forest degradation and the enhancement of forest carbon stocks (REDD+) will thus most likely involve governmental entities at different governance levels from central to local. Sub-national governments that implement REDD+ activities will generate carbon ecosystem services and potentially other co-benefits, such as biodiversity conservation, and in the process incur implementation and opportunity costs for these actions. This occasional paper analyses the literature on ecological fiscal transfers (EFTs), with a focus on experiences in Brazil and Portugal, to draw lessons for how policy instruments for intergovernmental transfers can be designed in a national REDD+ benefit-sharing system. EFTs can be an effective policy instrument for improving revenue adequacy and fiscal equalization across a country. They facilitate financial allocations based on a sub-national government’s environmental performance, and could also partly compensate the costs of REDD+ implementation. We find that intergovernmental EFTs targeting sub-national public actors can be an important element of policy mix for REDD+ benefit sharing, particularly in a decentralized governance system, as decisions on forest and land use are being made at sub-national levels. Given the increasing focus and interest on jurisdictional REDD+, EFTs may have a role in filling the shortfall of revenues for REDD+ readiness and for implementing enabling actions related to forest governance. If EFTs are to have efficient and equitable outcomes, however, they will require strong information-sharing and transparency systems on environmental indicators and performance, and the disbursement and spending of EFT funds across all levels
Ecological fiscal transfers; fiscal federalism; protected areas; policy design; applied econometrics
Intergovernmental fiscal transfers (IFTs) are an innovative way to create incentives for local public actors to support conservation. This book contributes to the debate about how to conserve tropical forests by implementing mechanisms for reducing deforestation and forest degradation (REDD+). With Indonesia as a case study, the authors adopt an interdisciplinary approach, drawing on political science, economics, and public policy. They consider the theoretical justification, as well as the wider political and administrative context for developing the design of IFTs for conservation. Students and scholars looking at conservation, ecological economics, decentralisation, forest policy and climate change will find this book to be of interest. It will also be of considerable use to policy-makers and practitioners working on forest policy, particularly those implementing REDD+.
Subnational governments’ capacity to effectively fund and deliver public services are crucial for the realisation of the benefits of decentralisation. However, subnational capacities often suffer from significant weaknesses, ranging from inadequate assignments of own-revenues, through to flaws in tax administration, the design of intergovernmental transfers, spending assignments and various aspects of public financial management.
This book examines and analyzes issues related to public finance in subnational governments, along with a discussion of case studies on decentralization. Most of the analysis applies to all public goods and services provided by subnational governments, with some placed on the role of subnational governments in the management of environmental resources, notably water and waste Coverage includes optimal arrangements for sharing fiscal responsibilities among different levels of government, the potential impact of decentralization on the quality of public goods delivery, local governments’ expenditure and revenue choices, and the effect of decentralization on accountability, governance and policy outcomes. The scope of discussion extends to both public finance theory and applied policy debates. The first chapter, on trends in financing of public services, opens with an explanation of the how and why of government intervention in the economy, the nature and purposes of transfers between and among governments and trends in decentralization. Case studies examine the impact of decentralization in such areas as service delivery, water and sanitation, education and health, and on poverty and income inequality. Chapter 2 examines public budgets: governance structures, norms and organizational practices, building up understanding of budgets, budget cycles, fiscal revenues from fees and taxes, expenses, debt and political economy issues, rules mandating balanced budgets in government and more. Chapter 3 discusses issues of accountability and policy outcomes, offering important lessons from recent international experience, including ways to strengthen political, administrative and financial accountability. The concluding chapter recounts lessons from recent international experience and surveys implications for the nexus approach to management of environmental resources. The information, analysis and expert advice presented here is particularly relevant for developing and emerging countries, where well designed decentralization reforms have a higher potential to improve efficiency in the provision of public services, and to enhance the development of integrated and sustainable strategies for the use of water, soil and waste resources and applications that advance the nexus approach.
Using panel data models, we analyze the flypaper effects—whether intergovernmental fiscal transfers or states’ own income determine expenditure commitments—on ecological fiscal spending in India. The econometric results show that the unconditional fiscal transfers, rather than the states’ own income, determine ecological expenditure in the forestry sector at subnational levels in India. The results hold when the models are controlled for ecological outcomes and demographic variables.
This brief focuses on lessons from the extractive resource sectors (oil, gas and mining) for REDD+ benefit-sharing. Specifically, it examines the different ways that revenues accruing to the government are distributed to subnational levels and the outcomes of different arrangements for doing so. These lessons are particularly relevant for scenarios where REDD+ revenues might reach significant volumes. Two main sorts of revenue would need to be distributed in the case of REDD+: i) payments to central or sub-national governments from international sources for emissions reduced and ii) taxes and fees collected by central government from REDD+ activities (Irawan et al. 2014). In both cases, decisions are needed on how to redistribute revenue between central and sub-national levels. A key concern in decisions over public revenues is allocation across jurisdictions. In this paper, we look at the rationales behind the way revenues from the sector are shared both with sub-national governments and across extractive and non-extractive localities. This experience is relevant for key questions facing REDD+ such as how to link benefit to performance at the sub-national levels, how to compensate costs, how to distribute benefits across a nation and how to enhance development outcomes. In so doing, we address key concerns in the debate about REDD+ benefit-sharing. These include how REDD+ might act as an incentive for reducing deforestation and degradation, and how it might also be integrated into development planning to help achieve wider outcomes.