Measurement of decentralisation

The empirical studies of the economic effects on fiscal decentralisation depend critically on the correct measurement of decentralisation. And yet the various decentralisation measures conventionally used by researchers do not reflect the complex nature of sub-central fiscal frameworks. In particular, the sub-central share of revenue suffers from the fact that revenue arrangements in many countries consist of tax sharing, with or without in-equalisation. To overcome this problem, the OECD (2009) has developed a set of criteria that identify two types of tax sharing: one with strict tax base proportionality and the other without it. However, this definition still needs further refinement since it does not capture the different degrees of fiscal equalisation embedded in tax sharing arrangements. This chapter suggests a refinement of the tax sharing definition that captures the degree of (inverse) proportionality between local tax base and revenue from tax sharing.

Measuring Fiscal Decentralisation: Concepts and Policies

Measurement of decentralisation

How should we categorise tax sharing?