Effect of decentralization strategy on macroeconomic stability in Thailand.

Includes bibliographical references

Introduction --Background -- Asymmetrical fiscal decentralization -- Theoretical framework -- Decentralized local public finance -- International experience and asymmetrical, fiscal decentralization -- Incentive problem in the Thai decentralization system -- Contributory problems -- Decentralization and macroeconomic stability -- The model -- Assumptions -- Forecasting procedure -- Results -- Conclusions and policy recommendations -- Appendix 1: GDP growth, inflation, and budget balance -- Appendix 2: Institutional infrastructure -- Appendix 3: local revenue for FY 1998-2001 -- Appendix 4: local revenue forecast for FY 2002-2006.

This research study examines how the Thai central government can finance decentralization and make local governments accountable for their own finances. The Thai government's medium-term fiscal stance is not conducive to planned fiscal decentralization, and local governments will not immediately assume responsibility for providing public services previously provided by the central government. This study proposes that the central government must revenue collection efficiency without hindering economic growth by gradually increasing the value added tax rate over the medium term. Thailand has adopted an unbalanced approach to fiscal decentralization. Local governments are guaranteed revenue from transfers from the central government but need not assume increased responsibility for providing public services. This encourages local authorities to spend irresponsibly in expectation of bailouts by the central government. This study recommends that the Thai central government impose hard budget constraints on local governments.