Local Public Finance and Capacity Building in Asia

Issues and Challenges

image of Local Public Finance and Capacity Building in Asia

Subnational governments’ capacity to effectively fund and deliver public services are crucial for the realisation of the benefits of decentralisation. However, subnational capacities often suffer from significant weaknesses, ranging from inadequate assignments of own-revenues, through to flaws in tax administration, the design of intergovernmental transfers, spending assignments and various aspects of public financial management. The volume discusses how better diagnostics and more strategic reforms can contribute to easing the resource constraints on subnational governments, as well as creating appropriate incentives for these governments to improve performance. The volume includes studies of the enabling conditions for subnational capacity building in Asia, as well as focused studies of China and India's fiscal relations challenges.


Fiscal transfers in Asia: Pitfalls and opportunities for achieving the Sustainable Development Goals

To achieve the Sustainable Development Goals (SDGs), increased and better quality public spending is needed, among other things. Responsibility for a significant share of this spending has been mandated to subnational governments across Asia, which are primarily dependent on fiscal transfers to fulfil these mandates. Not only do fiscal transfers provide the necessary resources for this spending, but how they are allocated can be critical in two crucial ways, for better or for worse. First, allocations shape geographic equity in spending across the national territory and hence progress toward SDG 10 (Reduce inequality within and among countries). Second, transfers often also have unintended incentives that can undermine the local budget priority-making processes needed to steer spending to SDG priorities. There is also an increasing body of experience in explicitly attaching positive incentives to transfers, which hold promise for promoting better local service delivery performance and accountability, and hence for attaining the SDGs.


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