Public Finance - Intergovernmental Relations - Essay Example

 In case the subnational governments become essential suppliers of goods and services, higher-level jurisdictions are supposed to share a given amount of their incomes with these subnational governments. This enables the bridging of the gap between incomes and spending organized locally (Wildasin, 123). When budgets are supposed to be balanced, various constraints might result in subnational spending. According to Wildasin (125), the first constraint is the capacity of income rising of these subnational governments becomes limited.

The second limitation is the occurrence of horizontal and vertical income sharing. Tax effectiveness grounds determine the optimal size of these subnational governments. The conformations of subnational incomes play a vital role in determining autonomy level over the expenditure management that the subnational governments enjoy. For example, mobilization of the local revenue is enhanced when essential tax bases are controlled by the subnational governments. This enables these governments to take legitimacy overusing these resources and managing them to their needs and preferences (Wildasin, 126).

Subnational governments are expected to reduce their spending management autonomy when there is reliance on revenue sharing, used in financing subnational spending that can be vertical or horizontal. In addition, fiscal decentralization may be more than delegation (Wildasin, 128). Additionally, subnational governments turn out to be spending agents of higher government levels that have inadequate decision making autonomy over the ways public funds are used up. The advantage of distribution in expenditure management is increased accountability and transparency in service delivery.

This is by bringing the spending done by the public sector nearer the taxpayers. Wildasin (130) states that policymaking autonomy over shared incomes enables local preferences to be accounted for when mandates for decision making and resources are decentralized. Additional challenges may occur when there is no conditionality in sharing revenue. In conclusion, the incentive for subnational governments in managing shared funds properly may be reduced. Also, the coordination capacity across government levels may be reduced.

Regardless of greater autonomy because of fiscal decentralization in making the budget, subnational governments are likely to have restricted power in debt management and issuance. These restrictions may be market-based or issued accurate budget rules. There may be several types of budget rules. For example, subnational governments may be barred from the use of debt financing, and the local legislatures forced to pass only the balanced budgets. In addition, indebtedness of subnational governments may be controlled by market forces (Wildasin, 132).

Work Cited Wildasin, David. “Introduction: Fiscal aspects of evolving federations.” International Tax and Public Finance. Springer. Vol. 3.2 (1996): Pp. 121-135. Print.