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Ecological fiscal transfers; fiscal federalism; protected areas; policy design; applied econometrics
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
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.
The design of intergovernmental fiscal transfers has a strong bearing on efficiency and equity of public service provision and accountable local governance. This book provides a comprehensive one-stop window/source of materials to guide practitioners and scholars on design and worldwide practices in intergovernmental fiscal transfers and their implications for efficiency, and equity in public services provision as well as accountable governance.
This thesis examines economic aspects of fiscal transfers for resource-rich subnational governments, with quantitative analysis for a large number of districts in Indonesia. Despite the advantages of resource endowment, these districts face a variety of challenges in fiscal management, which intersect with vertical fiscal transfers. There can be difficulties in raising own-source revenue as natural resource revenue may discourage own-source revenue raising. In the expenditure dimension, the presence of environmental spending spillovers can lead to non-optimal environmental spending decision-making by local governments. A further dimension relates to fiscal incentives. The central government attempts to achieve national development objectives through subnational government level by attaching conditions to fiscal transfers, but subnational governments have the opportunity to substitute the assisted expenditures with tied fiscal transfers. This thesis investigates these challenges through three analytical studies. It contributes to knowledge by providing theoretical and empirical understanding of fiscal policies in resource-rich districts. The findings provide insights to policy makers to further revamp the fiscal transfer design for resource-rich districts. The first study examines the impact of shared mining revenue on own-source revenue in mineral-producing districts. Using fixed effect method and district level data from 2001-2012, this study finds that the shared mining revenue does not become a disincentive for mobilizing local own-source revenue. The absence of control over mining sector revenue management makes these districts unable to substitute their own-source revenue to mining sector revenue. Nevertheless, the higher poverty rate in mineral-producing districts is negatively correlated with retribution revenue, which contributes to the lower own-source revenue in these districts. Retribution is charges or fess collected by local governments to community for the use of local government service, including fees for license issuance. The second study investigates the presence of spatial interaction in environmental spending policy. Using data for all physically neighbouring districts in Sumatera and Kalimantan Island for the period of 2009-2012, the spatial econometric estimations find positive spatial interaction of environmental spending, suggesting a district will increase its own environmental spending in response to neighbours' environmental spending. There appears strong evidence that pollution spillover produced by neighbouring districts serves as the channel of positive spatial interaction. The third study evaluates the existing fiscal incentive which is earmarked to education spending. Using a difference in difference approach for three periods of analysis, 2009-2010, 2009-2011 and 2009-2012, this study finds strong positive effect of this fund on recipients' education spending. However, the econometric estimations find dissipating increment of education spending over the three periods. This suggests the potential presence of non-additionality fungibility, where recipients reallocate their own budget for education spending in response to regional incentive fund they receive. Three overall insights emerge from this thesis. Firstly, there needs to establish incentive in fiscal transfer design which drives own-source revenue raising in resource-rich districts. Secondly, there is a case for greater intervention by central government to promote greater environmental spending in resource-rich districts. Thirdly, the ability of the central government to achieve policy objectives through fiscal transfer is hampered by substitutability of funds at local level. This calls for innovative design of fiscal transfer, possibly in the form of output-based fiscal transfers.