Globalization and Fiscal Decentralization

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Globalization and fiscal decentralization plays an important role in assuring the inflow of public sector incentives with the help of transparency between the central government and the citizens. In this process, the countries need the support of foreign organizations to accomplish their goal. It was realized that the macroeconomic conditions that exist in globally-connected nations are fraught with risks and uncertainties and need to be dealt with solutions and reforms and to which globalization and fiscal decentralization is the only answer.

About Globalization

In simple terms, globalization can be said to be an integration of the economies of distinct countries with the help of launching trade agreements between them including co-operation in goods and services sectors and inflow of massive corporate investments. Globalization also extends to doing away with trade barriers within various countries.

In present scenario, advanced technology is held to be the main factor that gives a boost to globalization. With the help of technology sector, we have been able to find an easy access to developed transport system within the nations that has made communication between the countries very effective.

Impact of Globalization

The term 'globalization' has been ruling the world from nineties of the previous century that mark the conclusion of the cold war, disintegration of the former Soviet Union and starting of new global era. The studies conducted by the World Bank and other international bodies helped in restructuring the system in several growing countries. With globalization, growing economies got an access to plethora of opportunities. Entry into rich nation markets became convenient and transfer of technology meant better productivity and living standards.

About Fiscal Decentralization

The concept of fiscal decentralization caught attention only after 1990. However, there are evidences that show that countries like Peru, Brazil, and Mexico introduced a system of fiscal decentralization in their economy long before 1990. According to former belief, the benefits of decentralization were dependent on the different regional demands for publicly offered commodities.

With time, it was realized that fiscal decentralization can in real sense be achieved only when countries re-evaluate their concerned economic policies and search for an ideal combination between full control of the government in centre on one hand and decentralized governance on the other.

Impact of Fiscal Decentralization

Many nations followed the footsteps of countries like Mexico, Peru and Brazil to incorporate political decentralization. But, there are still many nations that are continuing with their old format. The citizens of those nations, which follow centralizated policies, have to wait for the approval of the central government to make local services accessible. Such being the case, the states do not have many options left at their disposal. The means to generate revenue is limited and their borrowing rate is also decided by the central government. Owing to this, infrastructure improvement projects also suffer.

Truly speaking, there is no end to the disadvantages that a nation and its citizens with centralized policies have to face. However, if a system of fiscal decentralization is incorporated in the economy; all these problems can be resolved efficiently.

Steps for Fiscal Decentralization

Fiscal decentralization can be achieved by the nations on account of various factors, including:

  • Devising institutional system to strengthen inter-governmental economic relations
  • Planning fiscal transfers to assure regional fiscal equity and to build an effective environment for advanced and competitive service delivery
  • Restructuring tax responsibilities to allow local revenue autonomy, efficiency and accountability without marring internal common market.
  • Enhancing operation ability with the empowering environment via 'accountability for results' format of public management.
  • Determining the functions of different levels of government in public service delivery
  • Providing sub-national governments an access to responsible credit market

Relation between Globalization and Fiscal Decentralization

It was globalization that helped the nations to shift their attention from centralized economy to a decentralized form. Hence, it is evident that both are inter-related. The growth in international market integration helps in creating regional demand for protections against uncertainties. Globalization is instrumental in stabilizing macroeconomic conditions along with eliminating risks that might occur between the regions. Fiscal decentralization can be obtained if both centre and states are given the responsibility of public sector expenditures.

Last Updated on 5/18/2011