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Portugal has a unitary system in which the central government transfers funds to lower government levels for their public functions. In 2007, Portugal introduced Ecological Fiscal Transfers (EFT), where municipalities receive transfers for hosting protected areas (PA). We study whether introducing EFT in Portugal incentivized municipalities to designate PA and has led to a decentralization of conservation decisions. We employ a Bayesian structural time series approach to estimate the effect of introducing EFT in comparison to a simulated counterfactual time series. Quantitative results show a significant increase in the ratio of municipal and national PA designations following Portugal’s EFT introduction—which we infer to be a causal consequence. The analysis furthermore places emphasis on the importance of relevant municipal conservation competencies for the functioning of the instrument. Results have important implications for conservation policy-making in terms of allocating budgets and competencies in multi-level governments.

The concept of fiscal decentralisation is explained to be central to all models of decentralisation of public services to subnational governments. Fiscal decentralisation is generally referred to as the transfer of budget powers in terms of revenue and expenditure from national to subnational governments. Although fiscal decentralisation aims to ensure local financial independence, subnational governments continually experience financial shortfalls. In this regard, intergovernmental fiscal transfers are considered to address the financial gaps and guarantee continuity of public service delivery at subnational spheres of government. To understand transfers, the paper reviews the concept of intergovernmental transfers and explores the nature of the Lesotho intergovernmental transfer system. The study on which the article is based adopted the convergent mixed methodology. The findings indicate that Lesotho uses transfers as the primary source of revenue for subnational structures. Therefore, Lesotho subnational governments depend on transfers as their sole source of revenue, and this constrains the capacity of subnational governments to deliver services. The country does not have an intergovernmental fiscal transfer framework designed to regulate and direct transfers between and among government spheres. The article, therefore, recommends a three-pronged framework that considers the development of a subnational financial management legislative framework that demarcates the subnational financial scope and guides the subnational financial practices and processes; a decision by the country on the degree of revenue devolution to activate local revenue generation; and developing an intergovernmental transfer system based on revenue generation capacity and spending needs of councils to ensure incentive compatibility and secure some degree of equity among districts.

Governmental fiscal transfers can be important tools for redistributing resources and enhancing public services in areas with limited local resources. Meanwhile, politicians can use fiscal transfers to build patronage networks, weaken opposition candidates, or engage in rent-seeking. An understudied feature of governmental transfers is that local governments can become fiscally dependent on higher-level government. This dependence might lead local officials to favor the priorities of higher-level government while compromising responsiveness to local residents. Using panel data from Chinese villages, I demonstrate that when villages become more dependent on fiscal transfers from townships, they provide fewer public goods to villagers, pay more wages to village elites, and have stronger incentives to enforce the policies favored by higher-level governments. The results also suggest that fiscal transfers will not undermine local representation when electoral competition for village leadership positions exists.

Ecological fiscal transfers (EFTs) involve higher levels of government distributing funds to lower levels of government based on ecological indicators. In 2015 India established the world's largest system of EFTs when its 14th Finance Commission added forest cover to the formula that determines the amount of tax revenue the Union government distributes annually to each state. Here we gather state-by-state data on forestry budgets to assess whether India's EFTs incentivized states to protect and restore forests as evidenced by increases to their forestry budgets. We find that states increased their forestry budgets by 19% in absolute terms in the three years after the introduction of EFTs relative to the three years prior. However, forestry budgets as a share of overall state budgets shrank by 16% after the introduction of EFTs, from 0.99% to 0.83%. Furthermore, states that obtained a larger share of their budget from EFTs did not disproportionately increase their forestry budget. Taken together, this suggests the introduction of EFTs has not yet led states to increase their forestry budgets. We develop a causal chain that suggests two reasons this could be: (1) low expectations on the part of state government officials that EFTs would continue in such a way that increases in forest cover would be rewarded with increases in revenue; and/or (2) insufficient motivation to increase forestry budgets as an investment in future revenue from EFTs. The 15th Finance Commission has plausibly addressed low expectations by keeping forests in the tax revenue distribution formula for another period and updating the year for which forest cover is measured from 2013 to 2017. It has plausibly addressed insufficient motivation by increasing the weight on forests in the formula from 7.5% to 10%. Future research can show whether these modified EFTs incentivize states to increase forest protection and restoration.

Controlling for monetary policy, government transfers are potentially inflationary. This, however, may not be true when the economy is demand-constrained. Using panel data of 17 Indian states over 30 years, we show that government transfers via welfare programs do not lead to inflation. For identification, we use a narrative shock series of transfer spending based on the introduction of new welfare programs. We re-examine the relationship between government transfers and inflation by studying whether the recent implementation of India’s public workfare program, NREGA, had aggregate price effects. Using the phase-wise implementation design of the program, we confirm the absence of any association between higher program coverage and price inflation.

Evaluating the influencing factors of government spending on science and technology (S&T) at the system level has become a topic of focus in high-quality economic development. However, the existing literature has not yet explored whether and how vertical fiscal imbalance (VFI) affects government spending on S&T. In this work, we aim to address this gap. Using China’s panel data at the province level from 1998 to 2018, we empirically examine the influence of VFI on government spending on S&T by the fixed effect, mediating effect, and moderating effect models. We find that VFI substantially inhibits government spending on S&T, but this effect has significant regional and temporal heterogeneities. We further find that VFI indirectly affects government spending on S&T through intergovernmental fiscal transfers (IFTs), and the negative influence of VFI on government spending on S&T depends on IFTs. These findings give political references to deepen the fiscal reform, promote the local government investment in S&T, and implement innovation-driven development strategies.

The preface presents the main themes of this special issue. It starts by presenting the argument that the welfare state and the regulatory state are not dichotomies, arguing that both regulation and fiscal transfers for social purposes are increasing, particularly after the financial crisis of 2007, the climate crisis, and the COVID-19 crisis. Then it moves to introduce the articles that compose this special issue, their arguments, and their theoretical and empirical contributions.

Infrastructure investment has become a recent policy priority across cities and regions. The present research analyses specific institutional mechanisms that promote cities' investment in infrastructure systems. It explores how city governments adapt their infrastructure investment to state and local contexts. Using data at the municipal level, we examine trends in city-governmental investment toward road infrastructure across 2002, 2007, 2012 and 2017. Specifically, we present detailed data on impact fee authority for cities. The baseline finding is that local investment in road infrastructure varies widely in urban regions. Additional findings are that impact fee authority and fiscal transfers are statistically associated with cities' investment in road infrastructure systems. Further, we present a series of alternative tests to explore the potential sensitivity of results. The study connects literature on intergovernmental mechanisms that support local government investments in urban infrastructure systems.

Factionalism and performance are the dominant explanations of elite dynamics in China. While recent studies focus on the interaction between the two, this article introduces a crucial mediating factor—fiscal transfers—which has largely been overlooked. At the provincial level, leaders have incentives to obtain more transfers from the center and invest to boost GDP growth. Simultaneously decreasing their reliance on transfers is another performance indicator. The resulting balance is political, as leaders may receive more support based on their political connections. Based on two datasets of leaders and provincial finances from 1997 to 2015 and the introduction of instrumental variables, this article finds that while political ties can increase fiscal transfers, they also provide crucial information for leaders to achieve the optimal balance between transfers and growth. The political nature of transfers is also much more pronounced for provincial secretaries than governors. This study has implications for the literature on elite politics and links this research field with the literature on fiscal decentralization.