Shah, Anwar2012-06-262012-06-262006-10https://hdl.handle.net/10986/9013Intergovernmental fiscal transfers are a dominant feature of subnational finance in most countries. They are used to ensure that revenues roughly match the expenditure needs of various orders (levels) of subnational governments. They are also used to advance national, regional, and local area objectives, such as fairness and equity, and creating a common economic union. The structure of these transfers creates incentives for national, regional, and local governments that have a bearing on fiscal management, macroeconomic stability, distributional equity, allocative efficiency, and public services delivery. This paper reviews the conceptual, empirical, and practice literature to distill lessons of policy interest in designing the fiscal transfers to create the right incentives for prudent fiscal management and competitive and innovative service delivery. It provides practical guidance on the design of performance-oriented transfers that emphasize bottom-up, client-focused, and results-based government accountability. It cites examples of simple but innovative grant designs that can satisfy grantors' objectives while preserving local autonomy and creating an enabling environment for responsive, responsible, equitable, and accountable public governance. The paper further provides guidance on the design and practice of equalization transfers for regional fiscal equity as well as the institutional arrangements for implementation of such transfer mechanisms. It concludes with negative (practices to avoid) and positive (practices to emulate) lessons from international practices.en-USCC BY 3.0 IGOALLOCATION CRITERIAASSIGNMENT OF RESPONSIBILITIESBUDGET CONSTRAINTSBUDGETARY ALLOCATIONSBUDGETARY AUTONOMYBUDGETARY FLEXIBILITYCAPITA INCOMECAPITAL EXPENDITURESCAPITAL OUTLAYSCENTRAL GOVERNMENTCOMPETITIVE SERVICE DELIVERYCORPORATE INCOMECORPORATE INCOME TAXDEFICITSDISTRIBUTIONAL EQUITYECONOMIC EFFICIENCYEQUALIZATIONEQUALIZATION TRANSFERSEQUITY OBJECTIVESEXPENDITURE AREAEXPENDITURE NEEDSEXPENDITURE RESPONSIBILITIESEXTERNALITIESFINANCIAL ACCOUNTABILITYFINANCIAL REPORTINGFISCAL CAPACITIESFISCAL CAPACITYFISCAL CAPACITY EQUALIZATIONFISCAL DECENTRALIZATIONFISCAL DISPARITIESFISCAL EQUALIZATIONFISCAL EQUALIZATION PROGRAMFISCAL EQUALIZATION TRANSFERSFISCAL GAPFISCAL GAPSFISCAL HEALTHFISCAL MANAGEMENTFISCAL NEEDFISCAL RELATIONSFISCAL SITUATIONGOVERNMENT ACCOUNTABILITYGOVERNMENT BUDGETGRANT DESIGNSGRANT PROGRAMSGROSS DOMESTIC PRODUCTGROSS INCOMEHORIZONTAL EQUITYINFLATIONINSTITUTIONAL ARRANGEMENTSINSTITUTIONAL ECONOMICSINTERGOVERNMENTAL FINANCEINTERGOVERNMENTAL FISCAL TRANSFERSINTERGOVERNMENTAL TRANSFERSLEVEL OF GOVERNMENTLEVELS OF GOVERNMENTLOCAL AUTHORITIESLOCAL AUTONOMYLOCAL BUDGETLOCAL COMMUNITYLOCAL FISCAL BEHAVIORLOCAL GOVERNMENTLOCAL GOVERNMENT AUTONOMYLOCAL GOVERNMENTSLOCAL OFFICIALSLOCAL OWNERSHIPLOCAL RESIDENTSLOCAL SELF GOVERNMENTLOCAL SERVICE PROVISIONLOCAL SPENDINGLOCAL TAXPAYERSLOCAL TRANSFERSMACROECONOMIC STABILITYMATCHING GRANTSMINISTRY OF FINANCEMUNICIPALITIESNATIONAL GOVERNMENTNATIONAL MINIMUM STANDARDSNATIONAL OBJECTIVESNATIONAL TAXNATIONAL TAX BASEPER CAPITA INCOMEPERSONAL INCOMEPRIVATE GOODSPROVISIONSPUBLICPUBLIC GOODSPUBLIC GOVERNANCEPUBLIC MANAGEMENTPUBLIC MANAGERPUBLIC MANAGERSPUBLIC OFFICIALSPUBLIC SECTORPUBLIC SECTOR DECISIONSPUBLIC SECTOR OPERATIONSPUBLIC SERVICEPUBLIC SERVICE DELIVERYPUBLIC SERVICE PROVISIONPUBLIC SERVICESPUBLIC SPENDINGPUBLIC TRANSITRESOURCE ALLOCATIONREVENUE ADEQUACYREVENUE SHARINGREVENUE­SHARINGREVENUE­SHARING PROGRAMSSAVINGSSCHOOL DISTRICTSSERVICE DELIVERY FRAMEWORKSTATE GOVERNMENTSUBNATIONAL GOVERNMENTSSUBSIDIARITY PRINCIPLETAXTAX BASESTAX BURDENTAX BURDENSTAX CAPACITYTAX COMPETITIONTAX EFFORTTAX RATETAX RATESTAX SHARINGTAX SYSTEMTAX SYSTEMSTAXATIONTAXING POWERSTRANSFER OF RESOURCESTRANSPARENCYVERTICAL FISCAL IMBALANCEVOTERSWorld Bank10.1596/1813-9450-4039