rural-urban dynamics_report.pdf - Khazar University

GLOBAL MONITORING REPORT 2013 URBANIZATION AND THE MDGS 159
infrastructure gaps shifting among urban
and rural areas at a quickening pace, the
need for “place-based” responses to the service
delivery challenge is increasing. This
adequacy in resources should be provided in
terms of a country’s entire expenditure needs,
which include capital infrastructure, with the
goal of creating a level playing field.
Fiscal equalization
The incidence of both revenues and expenditures
is critical for MDG outcomes. These
effects can be enhanced by establishing some
level of equalization to address inequities in
resource distribution (Blöchliger and Vammalle
2009; Boadway 2012; Dafflon 2012;
OECD 2007). Changes in the patterns of
urban-rural development imply three basic
forces: citizens’ needs change because of
ongoing changes in their demographic composition,
poverty profiles, and income levels;
costs of service provision are affected; and
fiscal capacity is affected. Fiscal equalization
can help address these factors.
Equalization can be structured vertically
(across different levels of government), horizontally
(across and among jurisdictions), or
as a combination of both. It requires defining
the particular need, cost, and fiscal capacity
issue to be addressed through a transfer;
defining a group of representative taxes and
representative expenditures to be equalized;
and agreeing on the degree of equalization.
All these decisions have both a technical and
a political ingredient.
In short, equalization is a complex undertaking
both politically and practically. As
an outcome of political negotiation, transfers
are often overburdened with objectives,
which may weaken desirable compensatory
effects. Some countries do organize spatially
targeted programs aimed at stimulating
regional development at large with a focus on
the private sector. However, those programs
that include incentives such as tax breaks
or subsidies often challenge coordination
among the different interventions, including
service delivery and taxation, and specific
poverty and social programs. For example,
in Malawi, transfers are not establishing
sufficient levels of horizontal equity, as measured
using a per capita standard as a reasonable
comparator (World Bank 2012b). In
Bolivia, distribution is driven by hydrocarbon
revenues, which bear no relation to levels of
poverty in the different provinces. If horizontal
equity is recognized as a base for addressing
the MDGs, then more effort needs to be
put into fiscal equalization.
The type and degree of equalization is,
in the end, a political decision. Given the
prominence of infrastructure challenges in
the urban-rural dynamics, however, it is
unlikely that full equalization for all sectors
can or should be achieved. The right balance
is likely to depend on the type of infrastructure
needed and may vary with specific
circumstances, such as subnational capacity
and credit availability. In the case of infrastructure
for social services, such as health
and education, recurrent equalization grants
may be needed to cover continuing operation
and maintenance costs. For utilities and other
infrastructure whose costs can be largely
recovered through fees, credit-facilitating
policies may be the most appropriate means
of equalizing expenditures. For network
infrastructure where costs cannot be recovered
through fees, such as no-toll roads, a
conditional grant may be most appropriate.
Overall, it is clear that no country begins
with a clean slate. More often than not,
reforms of intergovernmental transfers are
done at the margin and incrementally, as is
demonstrated by Colombia’s current royalty
reform, which achieves more equality for royalty
resources in a gradual fashion. Other noteworthy
efforts are currently being undertaken
by Ethiopia, Kenya, Morocco, and Tajikistan,
although the results remain to be seen.
Governance for accountability
Accountability is critical to tackle the MDG
challenge. Accountability depends on the way
authority is constituted, but it also depends
on human resources management, an often
forgotten but critical element for accountability
and efficiency.
All decisions on resource distribution
require institutional arrangements and the