Chapter 5: Intergovernmental fiscal transfers and Indonesia’s experience
Intergovernmental fiscal transfers (IFTs) have become a cornerstone of subnational government financing. Transfers from central to local levels can address both the mismatch between revenues and expenditures and spatial externalities. To ensure IFTs achieve their policy objectives, attention has to be devoted to their design and the conditions in which they operate. The main elements of the design of IFTs are the distribution formula, conditionality and accountability (Bird, 1999, p. 24). The distribution formula entails the distributable pool (grant size), which is the vertical dimension of IFTs that determines the total amount of grants or transfers distributed to different government levels, and the horizontal dimension, which is the basis for distributing transfers to eligible local units. The literature on IFTs for biodiversity conservation suggests that political processes as well as community lobbying will influence the final design of the IFTs, although different options could be developed on the basis of scientific justification (Ring, 2008b; Köllner et al., 2002). Understanding stakeholders’ perspectives is therefore important, particularly because the decision-making process related to financing mechanisms needs to involve a multiplicity of actors, who may have different values and little consensus about the problem’s definition and solutions
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