Fiscal federalism in ethiopia

By | 10.08.2018

The main argument is that local governments are closer to the local population and can identify their choice and preferences better than the central government. This in turn would require mechanisms for the assignment of taxing power and revenue based on the nature and characteristics of the tax base. The fiscal performance of the country is reflections of a typical underdeveloped and agrarian based economy in which the majority of the population lives in chronic poverty and a government that devotes its effort to extraction of resources from the economy and failing to allocate these resources to priority areas and sectors of the economy. The most important factor which underlines the further autonomy of the regional states is the assigning of residual power.

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By taking into consideration principles such as ownership of revenue, regional character of revenues sources, convenience for administration, population, and wealth distribution, sharing of revenue between the Federal Government and the State Governments serves the following purposes: Constitutionally, the federal government is not effectively centralized through presidentialism. The average tax revenue for the period was about There could be contexts where the common decisions of the two become vital to ensure maximum benefits in a particular area.

The decline in revenue was particularly severe from business profit taxes, export taxes and revenue from government investment income. The significance of the residual power is that the regional states can exercise legislative power over matters not specified in the constitution.

The argument is based on the reasoning that lower levels of government have limited capacity and policy instruments to provide stabilization and redistribution functions. Beyond the "unrestricted right to administer itself", self-determination also includes proportional representation at federal organs.

The vertical structure defines the assignment of fiscal decision-making power between the federal and lower tiers of government. It manages, coordinates and supervises the activities of regional offices, zone administration offices and Weredas district offices.

It thus allocates residual authority to the constituent units. As can be inferred from Sub-Article 7 of Article 62 of the FDRE Constitution, which enumerates the powers and functions of the House of Federation, there is a possibility by which the Federal Government may transfer revenue to the regional governments. The third type of grant, equalization grant, is used to address horizontal imbalances between fedwralism governments flscal the channeling of resources from the relatively wealthier regions to poorer ones; thereby equalizing the capacity of regional governments to provide a national standard level of goods and services.

There are efficiency and equity considerations behind such principle of tax assignment. According to Article 96 of the FDRE Constitution the revenues of the Federal Government include customs duties, taxes and other charges levied on the importation and exportation of goods; income tax collected from employees of the Federal Government and international organizations; income, profit, sales and excise taxes collected from Federal Government owned enterprises; taxes collected from national lotteries ehhiopia other games of chance; taxes collected from income generated through air, rail, and sea transport services; taxes collected from rent of houses and Federal Government owned properties; charges and fees on licenses issued and services rendered by the Federal Government; taxes on monopolies; and Federal stamp duties.

The president has a symbolic role. The constitutional provisions define the framework within which decision-making would be exercised and establishes the vertical and horizontal structures that find federallism within the sthiopia socio-economic environment of the system. A longer view of the fiscal resource allocation behavior of the government, despite marginal changes in some aspects of the fiscal components, suggests that there has not been enduring and significant shift in policy over the past two or so decades.

It may be noted that the ideas of fiscal federalism are relevant for all kinds of government, unitary, federal and confederal. Even in non-federal states, there has been a growing movement towards greater fiscal decentralization in recent years. Currently, they are dependent on federal fund, particularly for capital budget.

What kind of taxes should be assigned to the federal government and which should be assigned to the local governments? Ethnical conflicts and boarder disputes are referred to the House of Federation. In undertaking this division, Economics emphasizes the need to focus on the necessity for improving the performance of the public sector and the provision of their services by ensuring a proper alignment of responsibilities and fiscal instruments. The revenue base of the regions is not that productive and expansive.

The ethnic groups are represented at this institute. In a similar manner, Article 97 ethiopi the revenue sources of the regional governments of the country as comprising of income taxes collected from employees of the States and of private enterprises; fees collected from land usufructuary rights; taxes collected from the income of private farmers and farmers incorporated in cooperative associations; profit and sales taxes collected from individual traders operating within state territories; taxes on income from water transportation within state territories; taxes collected from rent of houses and State Government owned properties; profit, sales, excise and income taxes collected from State owned enterprises; taxes on income, royalties, and land rentals from mining operations; charges and fees on licenses issued and services rendered by the State Governments; and royalties for use of forest resources.

Such a system was indeed unsustainable and the change in the political regime precipitates fedfralism collapse in the fiscal system.

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The horizontal structure outlines the nature of interaction across cross-sections of government levels. While economic analysis, as encapsulated in the theory of fiscal federalism, seeks to guide this division by focusing on efficiency and welfare maximization in determining optimal jurisdictional authority, it needs to be recognized that the construction of optimal jurisdictional authority in practice goes beyond purely economic considerations.

The concept of fiscal federalism is not to be associated with fiscal decentralization in officially declared federations only; it is applicable even to non-federal states having no formal federal constitutional arrangement in the sense that they encompass different levels of government which have de-facto decision making authority.

A closer examination of the main features of the fiscal system suggests that both factors play a role in the process.

This however does not mean that all forms of governments are 'fiscally' federal; it only means that 'fiscal federalism' is a set of principles that can be applied to all countries attempting 'fiscal decentralization'. Foreigners still provide about 3 percent as grants and lend about 3.

The collection of government revenue collapsed from rederalism a quarter of GDP to about The current government in power, except some marginal changes, shares important characteristics and behavior in fiscal policy with its predecessor.

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