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Ahmad and Albino-War are with the Fiscal Affairs Department, and Singh is with the Asia and Pacific Department, of the IMF. The paper has been prepared for the Handbook on Fiscal Federalism, edited by Ehtisham Ahmad and Giorgio Brosio (to be published by Edward Elgar in 2006). Substantive inputs from Teresa Ter-Minassian were received on an earlier draft of the paper, and helpful comments from participants at a seminar held in Torino in 2004, and from Giorgio Brosio are gratefully acknowledged, as were those received from Héctor Torres and Stephane Rottier.
This may relate to organic budget laws—such as in France (see Loi Organique, 2001), or to ordinary legislation in other countries.
See also Republic of South Africa, The Constitution, Act 108 of 1996; the Public Finance Management Act, Act 1 of 1999; and the Municipal Finance Management Act, Act 56 of 2003.
For instance, the IMF’s Code of Fiscal Transparency.
For instance, the HIPC debt relief program for Bolivia is designed to provide direct support to local governments to finance social investments.
Indeed, as seen with the recent discussion of the debt limits in countries such as Germany, penalties under the pacts must be implemented to be credible; and there should also be a corresponding capability to monitor the compliance with the stipulations (as has recently been illustrated in the case of Greece).
For example, this includes the economic classification as enunciated by the IMF’s Government Finance Statistics Manual 2001, and the functional classification described by the UN’s Classification of the Functions of Government.
The creation of a pure TSA implies that all government revenues must flow to the TSA and all spending must be made out of the TSA.
Also see Weingast et. al. (1981) who show that bargaining in a legislature comprised of regional representatives will lead to overprovision of spending programs with benefits concentrated in particular regions.
For more detailed discussion of soft budget constraints and their consequences see Kornai et al. (2003).
Nevertheless, since the crisis of 2001–2, banking regulations have been strengthened to prohibit commercial banks from extending new loans to the provinces and the nonfinancial public sector, and bilateral agreements have been sought to enhance coordination between different levels of government.