Intergovernmental Fiscal Transfers, Forest Conservation and Climate Change

Intergovernmental Fiscal Transfers, Forest Conservation and Climate Change

Silvia Irawan and Luca Tacconi

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.

Chapter 5: Intergovernmental fiscal transfers and Indonesia’s experience

Silvia Irawan and Luca Tacconi

Subjects: economics and finance, environmental economics, environment, climate change, ecological economics, environmental politics and policy, politics and public policy, environmental governance and regulation


Intergovernmental fiscal transfers (IFTs) have become a cornerstone of subnational government financing. Transfers from central to local levels can address both the mismatch between revenues and expenditures and spatial externalities. To ensure IFTs achieve their policy objectives, attention has to be devoted to their design and the conditions in which they operate. The main elements of the design of IFTs are the distribution formula, conditionality and accountability (Bird, 1999, p. 24). The distribution formula entails the distributable pool (grant size), which is the vertical dimension of IFTs that determines the total amount of grants or transfers distributed to different government levels, and the horizontal dimension, which is the basis for distributing transfers to eligible local units. The literature on IFTs for biodiversity conservation suggests that political processes as well as community lobbying will influence the final design of the IFTs, although different options could be developed on the basis of scientific justification (Ring, 2008b; Köllner et al., 2002). Understanding stakeholders’ perspectives is therefore important, particularly because the decision-making process related to financing mechanisms needs to involve a multiplicity of actors, who may have different values and little consensus about the problem’s definition and solutions

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