Fiscal Decentralization and Budget Control

Fiscal Decentralization and Budget Control

Studies in Fiscal Federalism and State-local Finance series

Laura Von Daniels

Fiscal Decentralization and Budget Control explores possible institutional solutions to fiscal instability in countries that have traditionally been caught up in problems of over-expenditure and over-indebtedness. How can governments control spending pressure from influential groups, often representing historically grown regional interests? Drawing on a mix of statistical analyses and case studies in institutional theory, the book provides new insights on previous stabilizations in Latin America and facilitates a better understanding of common dynamics of deficits and debt accumulation.

Chapter 8: Conclusion: balancing subnational fiscal autonomy and overall fiscal stability

Laura Von Daniels

Subjects: development studies, development economics, economics and finance, political economy, politics and public policy, political economy, public policy


In the present study, my research was led by the question of how governments can forge their country’s macroeconomic destiny and what institutional conditions will allow them to do so. More specifically, my aim was to investigate the role of budgetary institutions in fiscal stabilization in emerging market nations. In the theoretical parts of the book, I developed an argument about interactions between national-level budgetary institutions and subnational fiscal discipline in countries allowing their subnational governments different degrees of spending autonomy. Budgetary institutions include the rules, laws and hierarchical procedures that determine how well the government and the legislature on the national level can coordinate to pass fiscally responsible government budgets. My point is that more centralized budgetary institutions on the central or horizontal level of government are likely to improve fiscal outcomes on all levels of government for more than one reason. The first is that finance ministers and/or leaders of a country find it easier to constrain those budget players – within government and in the legislature – who have the strongest incentives to ‘over-fish’ the common pool resource, the national tax pool. Second, I argue that centralizing budget processes on the horizontal level also affects subnational fiscal discipline.

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