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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.
This paper analyzes the extent of income inequality from a global perspective, its drivers, and what to do about it. The drivers of inequality vary widely amongst countries, with some common drivers being the skill premium associated with technical change and globalization, weakening protection for labor, and lack of financial inclusion in developing countries. We find that increasing the income share of the poor and the middle class actually increases growth while a rising income share of the top 20 percent results in lower growth—that is, when the rich get richer, benefits do not trickle down. This suggests that policies need to be country specific but should focus on raising the income share of the poor, and ensuring there is no hollowing out of the middle class. To tackle inequality, financial inclusion is imperative in emerging and developing countries while in advanced economies, policies should focus on raising human capital and skills and making tax systems more progressive.
There is a growing debate on the relative merits of universal and targeted social assistance transfers in achieving income redistribution objectives. While the benefits of targeting are clear, i.e., a larger poverty impact for a given transfer budget or lower fiscal cost for a given poverty impact, in practice targeting also comes with various costs, including incentive, administrative, social and political costs. The appropriate balance between targeted and universal transfers will therefore depend on how countries decide to trade-off these costs and benefits as well as on the potential for redistribution through taxes. This paper discusses the trade-offs that arise in different country contexts and the potential for strengthening fiscal redistribution in advanced and developing countries, including through expanding transfer coverage and progressive tax financing.
The Fund has long played a lead role in supporting developing countries’ efforts to improve their revenue mobilization. This paper draws on that experience to review issues and good practice, and to assess prospects in this key area.
Work is constantly reshaped by technological progress. New ways of production are adopted, markets expand, and societies evolve. But some changes provoke more attention than others, in part due to the vast uncertainty involved in making predictions about the future. The 2019 World Development Report will study how the nature of work is changing as a result of advances in technology today. Technological progress disrupts existing systems. A new social contract is needed to smooth the transition and guard against rising inequality. Significant investments in human capital throughout a person’s lifecycle are vital to this effort. If workers are to stay competitive against machines they need to train or retool existing skills. A social protection system that includes a minimum basic level of protection for workers and citizens can complement new forms of employment. Improved private sector policies to encourage startup activity and competition can help countries compete in the digital age. Governments also need to ensure that firms pay their fair share of taxes, in part to fund this new social contract. The 2019 World Development Report presents an analysis of these issues based upon the available evidence.
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.
The book focuses on Indonesia's most pressing labor market challenges and associated policy options to achieve higher and more inclusive economic growth. The challenges consist of creating jobs for and the skills in a youthful and increasingly better educated workforce, and raising the productivity of less-educated workers to meet the demands of the digital age. The book deals with a range of interrelated topics---the changing supply and demand for labor in relation to the shift of workers out of agriculture; urbanization and the growth of megacities; raising the quality of schooling for new jobs in the digital economy; and labor market policies to improve both labor standards and productivity.