Measurement, Determinants and Effects on Country Stability
Studies in Fiscal Federalism and State–local Finance series
Edited by Núria Bosch, Marta Espasa and Albert Solé Ollé
Chapter 1: Inter-regional Fiscal Flows: Introduction to the Issues
Núria Bosch, Marta Espasa and Albert Solé Ollé 1 INTRODUCTION In many countries, intergovernmental finance debates are typically embroiled in arguments as to how much each region receives or should receive from the central budget. Such behaviour might purely be a symptom of the opportunism that afflicts many countries, though it might just as equally reflect longstanding, and as yet unresolved, financial conflicts within the territory. At the practical level, this issue is made manifest through the measurement of inter-regional fiscal flows or ‘net fiscal flows’, that is, the difference between what the residents of a particular region receive in terms of public services and what they actually pay in taxes to the central government. The first objective of this book, therefore, is to attempt to make sense of the usefulness of computing inter-regional ‘fiscal balances’, and in so doing to provide some guidelines as to how best to interpret the various methodologies adopted and the results to which they give rise. This is done by reporting the experiences of a number of countries. We seek to provide answers to such questions as: Why compute inter-regional fiscal flows? Is there a correct methodology for such computations? How should inter-regional fiscal flows be interpreted? What is the role of central government in the provision of information for this exercise? Can such data help enlighten the debate (and ease the territorial conflict) or do they simply serve to add more fuel to the fire of discontent (and exacerbate the conflict)? However,...