On the Design and Effectiveness of Targeted Expenditure Programs, Issues 2004-2220
This paper argues that both horizontal and intertemporal competition among recipient governments are needed in order to ensure incentives for effective utilization of targeted transfers. This has implications for budgeting frameworks and the types of information needed that might be amenable to formal contracting between the levels of government.
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2FT in period analyze a framework available transfers believes the local budget constraint central government believes central government decides central government’s chooses rji competition can help competition is important Diverting zero donors effectiveness inferred equilibrium with r"ji equilibrium with regional expected utility equals expositional simplicity foreign aid framework described funds assigned funds it diverts future transfers conditional government officials government to improve government's effectiveness governments in period help the central highlight the incentives ifra implicit incentives improve the performance incentives from regional incentives to divert infer hit intertemporal competition introduces Regional competition Let us suppose local government's effectiveness mechanism proposed mit-ri Moreover multi-year budget framework order to highlight paper focuses performance of targeted period three policy reforms positive probability presence of regional probability Pſhal proposition shows pure strategy equilibrium receive funds recipients stylized three-period model subnational governments Svensson targeted expenditure program unique pure strategy utility of incumbent