Intergovernmental Fiscal Transfers, Forest Conservation and Climate Change
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Intergovernmental Fiscal Transfers, Forest Conservation and Climate Change

Silvia Irawan and Luca Tacconi

Intergovernmental fiscal transfers (IFTs) are an innovative way to create incentives for local public actors to support conservation. This book contributes to the debate about how to conserve tropical forests by implementing mechanisms for reducing deforestation and forest degradation (REDD+). With Indonesia as a case study, the authors adopt an interdisciplinary approach, drawing on political science, economics, and public policy. They consider the theoretical justification, as well as the wider political and administrative context for developing the design of IFTs for conservation.
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Chapter 7: Incentive structures influencing subnational governments’ decisions on land-use change

Silvia Irawan and Luca Tacconi


The previous chapter established that national governments should involve local governments in planning and implementing REDD+ activities and that IFTs could be used to distribute REDD+ revenues to local level governments to compensate them for the eventual forgone benefits of deforestation and forest degradation. In this chapter we assess the financial incentives currently influencing different stakeholders, particularly local governments, in pursuing land-use change and forest exploitation in Indonesia. The opportunity cost is considered to be the most significant indicator of those financial incentives (Pagiola and Bosquet, 2008). The estimation of opportunity costs carried out in this chapter will then be used in Chapter 8 to explain how to calculate the size of the IFTs that may need to be distributed to local governments. Given their importance, research on the economics of REDD+ has given particular attention to the estimation of the opportunity costs of REDD+ and the required flow of funds at the global, national and sectoral levels (for example, Boucher, 2008; Butler et al., 2009; Grieg-Gran, 2008; Kindermann et al., 2008;

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