How nine major countries—Australia, Canada, Germany, India, Indonesia, Japan, the Republic of Korea, the United Kingdom, and the United States—handle intergovernmental fiscal transfers, with an emphasis on equalization transfers and a special look at fiscal transfers in China.
Ma presents an overview of intergovernmental fiscal transfer systems used in nine developing and industrial countries and draws implications for other developing countries.
On the basis of a comparison of these countries, Ma classifies equalization transfer formulas into four categories, analyzes the data requirements of each type of formula, discusses the applicability of these formulas in developing countries, and uses illustrative examples to show how the calculations should be carried out. The author also discusses implementation issues, including the transition from an old to a new transfer system. Finally, he presents an illustrative equalization transfer model for China.
Ma concludes that the formula-based equalization transfer system has at least three advantages over the discretionary system prevailing in many countries:
This paper—a product of the Macroeconomic Management and Policy Division, Economic Development Institute—is part of a larger effort in the department to study and disseminate international experience in fiscal management. Copies of the paper are available free from the World Bank, 1818 H Street NW, Washington, DC 20433. Please contact Chiharu Ima, room G8-004, telephone 202-473-5856, fax 202-676-9879, Internet address cima@worldbank.org. (78 pages)
The full report is available in PDF format.