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Decentralisation is now taking place in the public administrations of most countries of the world. This book explores the variety of methods used to ensure that fiscal decentralisation takes place alongside administrative decentralisation.
The economic activity that drives growth in developing countries is heavily concentrated in cities. Catchphrases such as “metropolitan areas are the engines that pull the national economy” turn out to be fairly accurate. But the same advantages of metropolitan areas that draw investment also draw migrants who need jobs and housing, lead to demands for better infrastructure and social services, and result in increased congestion, environmental harm, and social problems. The challenges for metropolitan public finance are to capture a share of the economic growth to adequately finance new and growing expenditures and to organize governance so that services can be delivered in a cost-effective way, giving the local population a voice in fiscal decision making. At the same time, care must be taken to avoid overregulation and overtaxation, which will hamper the now quite mobile economic engine of private investment and entrepreneurial initiative. Metropolitan planning has become a reality in most large urban areas, even though the planning agencies are often ineffective in moving things forward and in linking their plans with the fiscal and financial realities of metropolitan government. A growing number of success stories in metropolitan finance and management, together with accumulated experience and proper efforts and support, could be extended to a broader array of forward-looking programs to address the growing public service needs of metropolitan-area populations. Nevertheless, sweeping metropolitan-area fiscal reforms have been few and far between; the urban policy reform agenda is still a long one; and there is a reasonable prospect that closing the gaps between what we know how to do and what is actually being done will continue to be difficult and slow. This book identifies the most important issues in metropolitan governance and finance in developing countries, describes the practice, explores the gap between practice and what theory suggests should be done, and lays out the reform paths that might be considered. Part of the solution will rest in rethinking expenditure assignments and instruments of finance. The “right” approach also will depend on the flexibility of political leaders to relinquish some control in order to find a better solution to the metropolitan finance problem.
Publisher Description
The ongoing political decentralization in Asia, with central governments devolving to local governments the responsibilities of delivering key development projects and public services, calls for sound local government finance. Local government finance in the region exhibits several problems: deterioration of the fiscal health in many countries, mismatch between the delegated responsibilities and revenue-generating authority, resultant continued heavy reliance on central government transfers, and lack of political will to develop an external financing strategy to tap long-term private resources. In order for local governments to mobilize private savings for long-term infrastructure projects, it is imperative to develop municipal credit markets. Two models of municipal credit markets can be considered: the bank model popular in Western Europe and the bond model widely used in North America. The bond model has theoretically more advantages than the other. However, Asian local governments may start with either model considering the countries' social-cultural-political milieu and keep a proper combination of both models serving different segments of local credit markets.