The Impact Of Fiscal Decentralization And Intergovernmental Transfer Payments To Provincial Public Service Expenditure

Fiscal equalization and transfer payment are attempt by the federal government system in order to reduce inequalities and enhances government efficiency by providing public Service in terms of public service provision to residents,according to their needs and preferences.However,whether the benefits associated with decentralization materialize and reach the local citizens is the point of concentration for the researchers.The study explores whether central transfers to provincial unit have been used for stimulating provincial public development expenditures or have largely been replaced for fiscal efforts in collecting taxes from provincial own source revenue.The study also investigates the impact of unconditional(DPT,ST and NDG)and conditional transfers(DG)to determine the varying effects on public spending using a Stone Geary utility function over a sample of provincial units in Pakistan from1990 to 2015.The dissertation also provides an empirical evidence on the association between post-2001 devolution reform policy,government size,and specific components of government expenditures as regards to the expenditure on public services.Further,the dissertation carry out disaggregated analysis on the effect of fiscal decentralization and intergovernmental transfer payments,through NFC awards,on Provincial Public Service Expenditure and analyze the effect of devolution on government size and specific components(Education,Health,water supply and sanitation,irrigation,rural development and Infrastructure)of public Service expenditure.Additionaly,public service expenditure outcomes(in the form of literacy rate,student enrollment ratio,fully immunized children,number of doctors paramedics,population per bed in hospitals and access to tape water)is also analyszed.Moreover,the phenomenon of Common pool/leviathan hypothesis is also examined in the study.Thus it is a noteworthy addition in the empirical literature in the context of a less developed and resource constraints country where the sensitivities are always attached in the determination of distributional criteria and allocation of transfers among federating units.The results shows the higher and significant provincial dependency on central transfers in Pakistan.It is also confirmed that the conditional grant have larger impact on Social Service provision as compared to unconditional grants.Conditional grants although compromise provincial expenditure independence but still these grants boost the multiplier effect of transferred funds.The results also demonstrate that devolution is associated with a larger government size,which provides empirical support for the common-pool hypothesis,implying that the decentralization that informs the size of the general government depends on how sub-national governments finance their expenditures.Moreover,the findings suggest a significant increase in the magnitude of Health,education,irrigation,rural development and Infrastructure facilities at the local level following the devolution reforms.The results also demonstrate that devolution have contributed to improved service provision outcomes(in the form of literacy rate,student enrollment ratio,fully immunized children,number of doctors paramedics,population per bed in hospitals and access to tape water)as a result of newly established local governments giving higher priority to allocations for local service provision from given budgets in order to achieve higher levels of cost effectiveness in expenditures.The analysis will facilitate development practitioners,policy makers and planners in designing appropriate criteria and allocation strategies for future fiscal framework of federal transfers.Moreover the success of the NFC Awards in the midst depend on the fiscal discipline of the Federal government but more so the provincial government.Further,an early consultation process with provinces on transfer functions i.e.timeliness of transfer,administration capacity,projects,delivery and expenditure capacity should be undertaken.Federal ministries should be reorganized to focus on policy formulation and implementation while provincial on service delivery capacity.Provinces needs a lot of capacity building to take new responsibilities.