Mr. Niko A Hobdari, Vina Nguyen, Mr. Salvatore Dell'Erba, and Mr. Edgardo Ruggiero
Fiscal decentralization is becoming a pressing issue in a number of countries in sub-Saharan Africa, reflecting demands for a greater local voice in spending decisions and efforts to strengthen social cohesion. Against this backdrop, this paper seeks to distill the lessons for an effective fiscal decentralization reform, focusing on the macroeconomic aspects. The main findings for sub-Saharan African countries that have decentralized, based on an empirical analysis and four case studies (Kenya, Nigeria, South Africa, Uganda), are as follows: • Determinants and effectiveness: Empirical results suggest that (1) the major driving forces behind fiscal decentralization in sub-Saharan Africa include efforts to defuse ethnic conflicts, the initial level of income, and the urban-ization rate, whereas strength of democracy is not an important determi-nant for decentralization; and (2) decentralization in sub-Saharan Africa is associated with higher growth in the presence of stronger institutions.
• Spending assignments: The allocation of spending across levels of gov-ernment in the four case studies is broadly consistent with best practice. However, in Uganda, unlike in the other three case studies, subnational governments have little flexibility to make spending decisions as a result of a deconcentrated rather than a devolved system of government.
• Own revenue: The assignment of taxing powers is broadly in line with best practice in the four case studies, with the bulk of subnational revenue coming from property taxes and from fees for local services. However, own revenues are a very small fraction of subnational spending, reflecting weak cadaster systems and a high level of informality in the economy.
International Monetary Fund. Asia and Pacific Dept
in Lao People’s Democratic Republic, Malaysia, the Philippines, and South Asia ( Figure 2.9 ). VAT yields are remarkable, however, in Thailand, where the system allows only very few exemptions, and in Vietnam thanks to the 2006–10 tax reform.
Figure 2.7 Yields from Personal Income Tax 1
(2011 or latest, in percent)
Sources: IMF, GovernmentFinanceStatisticsdatabase; World Economic Outlook database; World Bank, World Development Indicators database; taxrates.cc; OECD; and IMF staff calculations.
1 Defined as tax revenue in percent of GDP divided
human and physical capital. Fiscal policy has also an important role to play in addressing income inequality and poverty concerns. 2 At the same time, there appears to be little room for a sizeable reduction of government spending. 3 Against this backdrop, boosting revenue is a top priority.
General Government Revenue
(Percent of GDP)
Sources: MoF; SSO; and IMF staff calculations.
Taxes and Social Contributions, 2019
(Percent of GDP)
Sources:IMFGovernmentFinanceStatisticsDatabase; National authorities; and IMF staff calculations.
International Monetary Fund. External Relations Dept.
identified by the OECD/Development Assistance Committee, the UN, and the World Bank to measure social development.
Data: World Bank, World Development Indicators database (Washington, 1998); and UNESCO, UNESCO Statistical Yearbook (Paris, various issues)
Average Intrasectoral Social Spending in Developing and Transition Countries
(percent of total sectoral spending; latest year for which data are available 1 )
Note: Countries with and without IMF-supported programs.
1 Mostly 1997.
Data: IMF, GovernmentFinanceStatisticsdatabase (Washington
Mr. Benedict J. Clements, Mr. Sanjeev Gupta, Mr. Alexander Pivovarsky, and Mr. Erwin H Tiongson
Chart 1 Aid and revenue effort
When countries receive more aid in the form of grants, their domestic revenues decline.
(percent of GDP)
Sources: IMF, GovernmentFinanceStatisticsdatabase; OECD, International Development Statistics database; and authors’ estimates.
Note: Simulations based on a doubling of aid flows.
When countries have weak institutions
Could weak institutions, as manifested when corruption is pervasive, alter these results? To test this hypothesis, we included a variable for corruption in our model, ranking the