Answer to Question #248210 in Macroeconomics for Snams

Question

Explain the core features of an intergovernmental fiscal relations system perfectly competitive Healthcare private market. What are the important factors to be taken into account when deciding on tax and expenditure assignments? Explain how each factor influences the sustainability of the assignment for national and subnational government (25 marks)

Answer 1

• Expenditures - the basic requirement for efficient and effective sub national government may be matching principles such that benefit areas are matched with financing areas. Expenditure responsibilities should be matched with revenue sources. The basic rule of efficient expenditure assignment is often taken to be to assign each function to the lowest level of government consistent with its efficient performance. Successful blocal government requires scarce public funds to be managed as effeciently and as effectively as possible.
• Revenues- although part of the proceeds of many taxes may accrue to sub national governments, the rates of these taxes are determined by the national government which also assesses and collects them.
• Transfer - regardless of the revenue sources made available to local governments, transfer from central to local governments will undoubtedly continue to constitute an important feature of the public finances of the country. If for any reason, services must be provided by local governments that do not have the fiscal capacity to finance them at levels considered adequate, if there are externalities associated with the services in question, transfers are needed.

Factors to consider when deciding on tax and expenditure assignments:

• Adequate control of the total level of revenue and expenditure.
• Appropriate allocation of public resources among sectors and programs.
• Ensuring that governmental institutions operate as efficiently as possible.
• Making decisions on imposition of a tax.
• Determination of the tax base.
• Tax rate setting.