Handbook of Multilevel Finance
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Handbook of Multilevel Finance

Edited by Ehtisham Ahmad and Giorgio Brosio

This Handbook explores and explains new developments in the “second generation” theory of public finance, in which benevolent rulers and governments have been replaced by personally motivated politicians and the associated institutions. Following a comprehensive introduction by the editors, the renowned contributors present fresh and original perspectives on the key multi-level issues, along with recent developments in theory and practice, as they relate to taxes, budget systems, the management of liabilities and macroeconomic stability. The book also explores special issues concerning the poor and marginalized, structural change and the environment, natural disasters, and the task of overcoming conflicts whilst keeping countries together.
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Chapter 9: Governance and institutions: the role of multilevel fiscal institutions in generating sustainable and inclusive growth

Ehtisham Ahmad


Differences in political ideology might lead to different views about the role of the state in the provision of public services across countries, or even in the same country over time. At the same time, it is clear that effectiveness of institutions associated with the generation and use of public resources varies considerably across countries. Despite the nominal presence of institutions that resemble best practice, many countries have difficulties in effectively generating public resources and ensuring that the generated resources are not misappropriated or badly utilized. Political choices at each level of government matter, and incentives facing officials and politicians determine whether an appropriate environment is created for sustainable investment. Institutions do not operate in a vacuum, and the context in which the organizational structure is established may lead to very different results in Mexico as opposed to a similar structure in Brazil or China. This is because incentives matter, and the balance of power and influence of elites, including bureaucracies, may determine whether or not an organizational structure generates rents at the behest of vested interests, especially in societies that North (1990) terms ‘limited access orders’. Thus, attempts by international agencies to propagate ‘best practices’ quite often fail. Sustainable and inclusive growth in multilevel countries depends on creating the right incentive structures for public and private investments, and supporting public service delivery at each level of government.

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