Monday, January 11, 2016

Fiscal Decentralization begets Fiscal Discipline?

"Government accountability to the people and the constitution are necessary for fiscal discipline. Unfortunately, it is very difficult to secure such accountability from governments whose primary source of income is not income taxes (that is, public revenues do not come directly from the people) but royalties from the exploitation of natural resources (such as oil). Where the bulk of public revenues are derived from royalties paid primarily by foreign or transnational firms, it is very difficult for citizens to check on the exercise of government power and force accountability" - John Mbaku
"Precisely, Professor Mbaku. This is an argument I have been making in both private discussions with my compatriots and in my writings, including in my book, Africa in Fragments. In fact it is the most potent argument for fiscal federalism and fiscal decentralization. People often say to me: how do you expect states without oil to survive, and wouldn't we just be decentralizing corruption and other malfeasance that characterize the Abuja oil revenue bazaar? My answer has always been that, 1) fiscal federalism will compel non-oil producing states to look inward to other revenue generating avenues, including taxes and levies, 2) that if internal taxes within a state constitute the revenue base of such a state government, the tax-paying people will fight for accountability and will hold public office holders accountable. It is their money, in a very literal sense. They will abandon the current aloofness that is engendered by the fact that the (oil) revenue source is distant, mysterious, and impersonal, and thus unworthy of personal emotional investment. In a nutshell, I tell people that fiscal federalism, real fiscal federalism, is a way to solve two problems at once. First, it will considerably douse the political tension and mutual suspicion and distrust in the country while encouraging healthy developmental competition between constituents and regions. Second, at least for the non-oil producing states, it will considerably reduce the corruption problem we always lament and encourage accountability" - Moses Ochonu


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