Sub-national governments exist to allocate public goods and services at a local level. The document discusses fiscal decentralization versus centralization and describes the Tiebout model of jurisdictional competition. It outlines South Africa's assignment of expenditures and revenues across national, provincial, and local governments. The types and purposes of intergovernmental grants are reviewed along with sub-national borrowing powers and the role of the FFC. Trends in provincial and local financing in South Africa are also discussed.

2. • Explain why sub-national governments exist at all
and compare the merits of fiscal decentralisation and
centralisation
• Describe the Tiebout model
• Describe the assignment of expenditure functions
and revenue sources (tax powers) to the
national, provincial, and local spheres of government
in South Africa
• Distinguish between tax competition and tax
harmonisation.

3. • Explain the reasons for, and the nature
of, intergovernmental grants
• List the types of intergovernmental grants
• Explain the issues that surround borrowing powers
and debt management at sub-national level
• Review the role of the South African Financial and
Fiscal Commission (FFC) in sharing revenue across
the three spheres of government
• Discuss trends and issues in provincial and local
government financing in South Africa.

4. • Sub-national government
• Intergovernmental fiscal relations or fiscal
federalism
• Spatial externalities
• Public choice perspective on fiscal federalism.

5. Assumptions
• All citizens are fully mobile
• Individuals have full information about the local public goods offered by each jurisdiction
• there is a large number of jurisdictions to choose from, spanning the full range of public
good combinations desired by
• citizens
• There are no geographic employment restrictions: people receive income from capital only
and are not tied to a
• particular location through job or family ties
• There are no spillovers across jurisdictions
• There are no economies of scale in the production of public goods.
Just as the consumer may be visualised as walking to a private market place to buy
his goods, we place him in the position of walking to a community where the prices
(taxes) of community services are set. Both trips take the consumer to market. !ere
is no way in which the consumer can avoid revealing his preferences in a spatial
economy.
Tiebout, 1956: 422

6. • Benefit or costs of a public service spill over to non
residents
• Justification for centralised provision of public
services
– Transport systems
– Water
• Lower administration and compliance costs.

7. The assignment issue
• Stabilisation function
• Distribution function
• Allocation function
• Tax assignment
• Expenditure assignment.

8. Tax competition occurs when sub-national governments adjust (lower)
their tax rates to attract mobile factors of production (notably capital)
from other jurisdictions.
Tax harmonisation occurs when sub-national governments coordinate
their tax policies (for instance, by limiting the degree of variation in tax
rates levied, or by defining the tax bases in a uniform way).

9. • Financial contagion
• Moral hazard.

14. • Fiscal imbalances
• Minimum standards in public goods and services
provision
• Compensation for benefits.

15. • Constitutional
– Expenditure assignment
– Revenue assignment and borrowing powers
• Intergovernmental transfers and the Financial & Fiscal
Commission (FFC)
– Revenue sharing
– Vertical division of revenue
– Horizontal division of revenue
• Horizontal fiscal imbalances
• Provincial financing issues
• Local government financing issues
– Urban economics.