This paper discusses how decentralized countries can achieve sound fiscal relations between the central government and lower government levels. The concepts of 'vertical gap' and 'vertical balance' provide an analytical framework for identifying and addressing key challenges. These concepts can...

We build an infinite horizon equilibrium model of fiscal federation, where anticipation of transfers from the central government creates incentives for local governments to overborrow. Absent commitment, the central government over-transfers, which distorts the central-local distribution of...

Governments pursue fiscal decentralization for a variety of reasons: to make government more responsive and accountable to the people, to increase the efficiency of the public sector, and to promote national cohesion. Generally speaking, public sector economists emphasize the accountability and...