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Measuring Fiscal Decentralization in the Philippines

Discussion Papers

No.209

by UCHIMURA Hiroko and SUZUKI Yurika
July 2009

ABSTRACT

This paper focuses on the fiscal decentralization in the Philippines after the 1991 Local Government Code. It first examines the intergovernmental fiscal relationship between central and local governments by using fiscal decentralization indicators, and then investigates its impact on local finance. After fiscal decentralization, the local expenditure responsibility is expanded while the local fiscal capacity is not strengthened in the Philippines. Local governments consequently comes to depend heavily on fiscal transfers from the central government, internal revenue allotments (IRAs), which has a substantial influence on local finance. The heavy dependence on IRAs makes local finance unpredictable and unstable. The distribution of IRAs also affects the horizontal balance between provincial governments.

Keywords: Fiscal Decentralization, Fiscal Decentralization Indicators, Horizontal Balance, the Philippines

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