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 8: The distribution formulae of IFTs for REDD+

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


Following the assessment of REDD+ opportunity costs incurred by local governments from alternative land-use activities, this chapter considers the options for the specification of the formula to determine the size of IFTs for the distribution of REDD+ revenue to district governments. Two important aspects of the distribution formula that are explored are the grant size to be allocated to different levels of government; and the size of IFTs allocated for each eligible locality to pursue REDD+. The grant size, or distributable pool, is the vertical dimension of IFTs that determines the total size of grants or transfers distributed to different levels of government; whilst, the horizontal dimension decides the size of transfers allocated to each local government unit (Bird, 1999; Bahl, 2000). As discussed in previous chapters, IFTs for biodiversity conservation can help reconcile local costs with spillover benefits of conservation that reach beyond local boundaries. Brazil and Portugal use IFTs to support biodiversity conservation by transferring a portion of national or state governments’ taxes (e.g. in Brazil, state-level value added tax) to local levels on the basis of conservation and ecological indicators (Grieg-Gran, 2000; May et al., 2002; Ring, 2008c; Santos et al., 2012).

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