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The paper provides an empirical analysis of the determinants of fiscal decentralization within Russian regions in 1994-2001. The conventional view that more decentralized governments are found in regions and countries with higher income, higher ethnolinguistic fractionalization, and higher levels of democracy is not supported by the data. This motivates a more refined analysis of the determinants of decentralization that points to the link between decentralization and the structure of regional government revenue: access to windfall revenues leads to a more centralized governance structure. The degree of decentralization also depends positively on the level of urbanization and regional size and negatively on income and general regional development indicators such as the education level.

Autonomy --- Bank --- Banks and Banking Reform --- Budget --- Budgets --- Debt Markets --- Economic Theory and Research --- Finance and Financial Sector Development --- Fiscal Decentralization --- Fiscal Federalism --- Governance --- Governments --- Inflation --- Interest --- Intergovernmental Fiscal Relations and Local Finance Management --- Land --- Local Government --- Local Governments --- Macroeconomics and Economic Growth --- Municipal Financial Management --- Municipal Governments --- Public Finance Decentralization and Poverty Reduction --- Public Sector Economics and Finance --- Public Sector Management and Reform --- Revenue --- Services --- Statistical Analysis --- Structure Of Governance --- Subnational Governance --- Transfers --- Urban Development --- Urban Governance and Management --- Urbanization

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In China, most of the service delivery responsibilities are assigned to the subnational governments. Yet for reasons of efficiency in tax collection and administration, the central government collects revenues far in excess of its expenditure needs. In 2003 the central government collected 70 percent of consolidated revenues but accounted for only 30 percent of consolidated expenditures. The initial fiscal surplus of the central government enables it to use its spending power to provide financing to subnational jurisdictions for the achievement of national objectives and to influence local priorities. This paper examines the incentives associated with the design of such transfers and their implications for the efficiency and equity of public service provision and accountable local governance in China. The paper argues that the existing design of such transfers is not consistent with efficiency and equity considerations. It further undermines local autonomy without enhancing local accountability while creating incentives for imprudent fiscal management. Its main limitations include a complex and opaque system, a piecemeal approach to gap filling, lack of consistency of design with objectives, focus on input controls without regard for output accountability, incentives to support an antiquated management paradigm, a one-size-fits-all approach to local financing, and lack of transparency and regulatory framework for the intergovernmental transfer system. The paper makes specific suggestions on a reform of this system to overcome these limitations and on better use of fiscal transfers to create responsive, responsible, equitable, and accountable local governance in China.

Accounting --- Bank Policy --- Debt Markets --- Equity --- Exchange --- Expenditure --- Expenditures --- Finance --- Finance and Financial Sector Development --- Fiscal Adjustment --- Income Tax --- Income Taxes --- Intergovernmental Fiscal Relations and Local Finance Management --- Intergovernmental Transfer --- Intergovernmental Transfers --- Level Playing Field --- Local Governments --- Macroeconomics and Economic Growth --- Options --- Personal Income --- Public and Municipal Finance --- Public Finance Decentralization and Poverty Reduction --- Public Sector Management and Reform --- Return --- Revenue --- Revenues --- Subnational Governance --- Tax --- Tax Collection --- Taxation and Subsidies --- Urban Development --- Urban Economics --- Urban Governance and Management

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Intergovernmental fiscal transfers are a dominant feature of subnational finance in most countries. They are used to ensure that revenues roughly match the expenditure needs of various orders (levels) of subnational governments. They are also used to advance national, regional, and local area objectives, such as fairness and equity, and creating a common economic union. The structure of these transfers creates incentives for national, regional, and local governments that have a bearing on fiscal management, macroeconomic stability, distributional equity, allocative efficiency, and public services delivery. This paper reviews the conceptual, empirical, and practice literature to distill lessons of policy interest in designing the fiscal transfers to create the right incentives for prudent fiscal management and competitive and innovative service delivery. It provides practical guidance on the design of performance-oriented transfers that emphasize bottom-up, client-focused, and results-based government accountability. It cites examples of simple but innovative grant designs that can satisfy grantors' objectives while preserving local autonomy and creating an enabling environment for responsive, responsible, equitable, and accountable public governance. The paper further provides guidance on the design and practice of equalization transfers for regional fiscal equity as well as the institutional arrangements for implementation of such transfer mechanisms. It concludes with negative (practices to avoid) and positive (practices to emulate) lessons from international practices.

Debt Markets --- Distributional Equity --- Equalization --- Equity --- Finance --- Finance and Financial Sector Development --- Financial Literacy --- Fiscal Management --- Grant Designs --- Grant Programs --- Grants --- Health, Nutrition and Population --- Infrastructure --- Intergovernmental Finance --- Intergovernmental Fiscal Relations and Local Finance Management --- Intergovernmental Transfers --- Local Autonomy --- Local Governments --- Macroeconomic Stability --- Municipal Financial Management --- Population Policies --- Public --- Public Finance Decentralization and Poverty Reduction --- Public Sector Economics and Finance --- Public Sector Expenditure Analysis and Management --- Public Sector Management and Reform --- Public Service --- Revenue --- Revenues --- Services --- Subnational Governments --- Urban Development