Decentralization refers to division of multidimensional power between the center and sub national governments. Fiscal decentralization is core component of decentralization that gives an autonomous authority to local governments a revenue and expenditure assignments. Though fiscal decentralization has given revenue raising and spending decision powers to lower levels of government, the implementation process has often been a discouraging task for many local authorities in the developing world. In the case of Ethiopia, decentralization has been implemented since 1991. However, vertical as well as horizontal fiscal imbalance still persists at different layers of government. Therefore the core objective of this paper is to assess the causes and consequences of fiscal imbalance in Tigray, focus on Wukro & Maichew. In order to collect the required data, both primary and secondary sources are used. In addition with this, the research also applies qualitative approach and using case study design. Accordingly, at region level, the region only covers 29% of its total expenditure in the last six years. In line with this, Wukro and Maichew Wereda are among the Weredas in Tigray which faces the problem of fiscal imbalance. While Wukro Wereda covers 14.5% of its total expenditure from internal revenue and Maichew only covers only 11.3% of its expenditure. Poor revenue assignment, huge expenditure responsibility, geographical and topographic characteristics and inadequate capacity building activities to raise revenue in the study areas are the causes of fiscal imbalance in the study areas. Restricting expenditure opportunity, affecting service delivery and causes incomplete plan are the major negative implication of fiscal imbalance in the study areas. Accordingly, extending the revenue authority, identifying prioritized expenditure responsibilities, and consolidating intergovernmental fiscal transfer are among the recommended ways of tackling fiscal imbalance in the study areas.
Table of Contents
Chapter One: Introduction
1.1 Background of the Study
1.2 Statement of the Problem
1.3 Broad Purpose of the Study and Research Questions
1.4 Research Objectives
1.5 Significance of the Study
1.6 Scope and Limitation of the Study
1.7 Organization of the Paper
Chapter Two: Review of Related Literature
2.1. The Concept and Essence of Decentralization
2.2. Fiscal Decentralization
2.3. Fiscal Imbalance
2.4. Causes of Vertical and Horizontal Fiscal Imbalances
2.5. Intergovernmental Fiscal Transfers
2.6. Conceptual Framework
Chapter Three Fiscal Decentralization in Ethiopia
3.1. Legal Framework for Fiscal Decentralization in Ethiopia
3.2. Expenditure and Revenue Assignments under the FDRE Constitution
3.3. Legal Framework for Intergovernmental Fiscal Transfer in Ethiopia
3.4. Federal Block Grant in Ethiopia
Chapter Four: Research Methods
4.1. Description and Rationales for Selecting the Study Area
4.2. Data Type and Source
4.3. Research Strategies and Design
4.4. Target Population & Selection of Respondents
4.5. Data Collection Methods
4.6.Methods of Data Analysis
4.7. Ethical Considerations
Chapter Five: Results and Discussions
5.1. Causes of Fiscal Imbalance in Tigray
5.2. The Causes of Fiscal Imbalance in the Study Weredas
5.3. Inter-Governmental Fiscal Transfer and Consequence of Fiscal Imbalance in Tigray
5.3.1. Intergovernmental Fiscal Transfer in study area
5.3.2. Major Consequences of Fiscal Imbalance in study area
Chapter Six: Conclusion and Recommendation
6.1. Conclusion
6.2. Recommendation
Research Objectives and Themes
The core objective of this study is to assess the causes and consequences of fiscal imbalance in the Tigray region, with a specific focus on the Wukro and Maichew Weredas. The research investigates how fiscal decentralization has influenced expenditure assignments and revenue-generating capacities at the local level.
- Causes of vertical and horizontal fiscal imbalances in Tigray.
- Impact of fiscal imbalance on local autonomy and service delivery.
- Challenges in intergovernmental fiscal transfers and grant formulas.
- Inequalities between local revenue-generating power and expenditure responsibilities.
Excerpt from the Book
2.3. Fiscal Imbalance
Fiscal imbalance seems intrinsic in almost all federal states. As a regulation federal governments tends to collect most taxes while sub-national governments are often responsible for more expenditure than can be financed from sources of revenue directly under their control. The resulting difference between expenditure and revenue of different level of government is called fiscal imbalance (Richard & Andrey, 2002). It occurs when there is a lack of coordination between public expenditures and public revenues. There are two kinds of fiscal imbalance, namely: vertical and horizontal fiscal imbalances. Before we are going to comparative analysis of the next section, we shall therefore discuss these two points and the role of intergovernmental fiscal transfer in dealing with them, at somewhat in detail.
2.3.1. Vertical Fiscal Imbalance (VFI): Vertical fiscal imbalance occurs when there is insufficiency between the expenditure responsibilities assigned to each level of government and the fiscal resources available to them to carry out those responsibilities (Boex, 2004). Ebel and Yilmaz (2002) also try to clarify vertical fiscal imbalance as a mismatch between expenditure responsibilities and revenue rising power of the two tiers of government. The revenue rising power of the lowest level of government is affected by poor tax collection and administration. In line with this, the most common source of vertical imbalance is the lack of revenue autonomy at the sub national level including the perception of the central authorities that most significant taxes should be centrally managed (Vazquez, 2004).
2.3.2. Horizontal Fiscal Imbalance (HFI): The problem of horizontal fiscal imbalance is common in all systems of multi-tiered government since sub national governments at the same level will almost never possess the same fiscal capacity. Horizontal fiscal imbalance arises because governmental entities at the same level must often provide essentially the same services but enjoy different revenue capacities and face different cost differentials in the provision of these standard services for inevitable and ‘unavoidable’ exogenous reason (Brain, 2008).
Chapter Summary
Chapter One: Introduction: This chapter introduces the core concept of fiscal decentralization and the persistent problem of fiscal imbalance in Ethiopia, establishing the research background and objectives.
Chapter Two: Review of Related Literature: This chapter provides an academic overview of decentralization theories, fiscal imbalance types, and intergovernmental transfer mechanisms used globally and in Ethiopia.
Chapter Three Fiscal Decentralization in Ethiopia: This chapter examines the legal and constitutional framework governing fiscal relations between the federal government and regional states in Ethiopia.
Chapter Four: Research Methods: This chapter details the qualitative case study approach, data sources, and target population selected for investigating the Wukro and Maichew Weredas.
Chapter Five: Results and Discussions: This chapter analyzes the primary causes of fiscal imbalance in Tigray, including revenue-related, expenditure-related, and topographical factors, and discusses the resulting consequences.
Chapter Six: Conclusion and Recommendation: This chapter summarizes the study's findings and offers policy recommendations to mitigate fiscal imbalances and improve local fiscal autonomy.
Keywords
Decentralization, Vertical Fiscal Imbalance, Horizontal Fiscal Imbalance, Intergovernmental fiscal transfer, Fiscal Autonomy, Public Expenditure, Revenue Assignment, Tigray, Wukro, Maichew, Ethiopia, Federalism, Service Delivery, Revenue Generation, Fiscal Policy
Frequently Asked Questions
What is the primary focus of this research?
The research focuses on assessing the causes and consequences of fiscal imbalance within the Tigray regional state, specifically examining the Wukro and Maichew Weredas.
What are the central themes covered in the work?
Central themes include the legal frameworks of fiscal decentralization in Ethiopia, the dynamics of vertical and horizontal fiscal imbalances, and the role of intergovernmental fiscal transfers.
What is the main objective of the thesis?
The primary goal is to analyze why these local administrative units face consistent fiscal gaps and to examine how these imbalances affect their autonomy and service delivery.
What scientific methodology does the author use?
The author employs a qualitative research approach utilizing a case study design, incorporating in-depth interviews with government officials and document analysis of official financial reports.
What does the main body of the work address?
The main body reviews existing literature on fiscal decentralization, examines the Ethiopian constitutional framework, and discusses empirical results regarding fiscal management in Tigray.
Which keywords characterize this paper?
Key terms include Decentralization, Vertical Fiscal Imbalance, Horizontal Fiscal Imbalance, Intergovernmental fiscal transfer, and Fiscal Autonomy.
How does the topography affect fiscal balance in Tigray?
The study highlights that Tigray's rugged topography increases the costs of infrastructure development, such as roads and water supply, thereby inflating expenditure needs and exacerbating fiscal imbalances.
What are the major consequences of fiscal imbalance mentioned?
The study identifies restricted expenditure opportunities, negatively impacted service delivery, and the occurrence of incomplete public plans as major negative consequences.
- Quote paper
- Tedros Bezabeh (Author), 2012, Causes and Consequences of Fiscal Imbalance in Tigray, Munich, GRIN Verlag, https://www.hausarbeiten.de/document/262862
