HESPI Policy forum organized on “Fiscal Federalism and Decentralization in the IGAD member countries”

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Venue Location

Addis Ababa

The Horn Economic and Social Policy Institute (HESPI) has been organizing Policy Forums to create an avenue for cross-learning and to disseminate research findings to influence policy formulation and implementation processes. On 26 September 2016, the Institute held a policy forum on Fiscal Federalism and Decentralization based on a commissioned study conducted for selected IGAD member countries: Ethiopia, Kenya, Somalia and South Sudan. The aim of the Forum was to assess and document the practice of fiscal federalism in the select countries and to draw useful lessons from the relatively advanced federal systems of Ethiopia and Kenya, for Somalia, South Sudan and other IGAD member states embarking on federal governance. The Forum participants included policy makers and prominent researchers on federalism and decentralization from the select IGAD countries and the sub-region at large. The study assessed how fiscal federalism operates or is designed to operate in each member country of the IGAD region; as well as the structure and operations of fiscal federalism in the region. In considering the lessons that may be learned, attention is given to the criteria of equity, autonomy, accountability, political stability and intergovernmental relations between the levels of government. The study and the policy discussions at the Forum focused on various issues including institutional architecture in a federal system, arrangements of expenditure assignment at different government levels, allocation of revenues generating authority in federal systems, and intergovernmental transfer. Accordingly, the Policy Forum presentation and discussions covered the following basic issues or ‘building blocks’ of fiscal federalism in an interrelated manner: The institutional framework that can be related to the fiscal issues in terms of defining the number and size of constituent units, the devolution of administrative, human and financial resources, and the importance of the constitutional institutions designed to ensure participation of the constituent units in the federal power sharing arrangement; The constitutional design for the distribution of expenditure responsibilities, and the case for constitutional clarity to define the nature of federal or devolved system. It deals with the issue of ‘who does what’ in a federal system which depends on the constitutional division of powers and responsibilities; The related issue is the division of revenue raising powers between the federal government and the regions. It focuses on the assignment of taxes in general and natural resources taxation in particular; Following the nature of expenditure and tax assignments, the study focuses on the causes and impact of fiscal imbalances (vertical and horizontal) between the tiers of government in executing their respective responsibilities; The types and forms of transfers employed and their constitutional basis are the most important issues addressed in the paper. Transfers in the form of sharing joint revenue, tax bases, or allocation of general or conditional grants and their objectives are assessed; The role of functional and administrative capacity is assessed in terms of the overall importance of achieving the objectives of fiscal federalism and decentralization.