Integration, decentralization, taxation, and revenue sharing : Good governance, sustainable fiscal policy and poverty reduction as peace-keeping strategies

Figure 1: Institutional Congruency: Beneficiary, Decision-maker, 
Taxpayer, and Voter Coincide 
Source: Blankart (2006). 
Figure 2: Institutional In-congruency: and Order Management 
Source: Blankart (2006). 
Beneficiary 
= 
Decision-maker 
= 
Taxpayer = Voter
Beneficiary 
Decision-maker 
Taxpayer = Voter 
Taxpayer 
Decision- 
maker 
Beneficiary = 
Taxpayer 
Tax-
payer 
by Order 
State 
Community 
State or Other 
Jurisidiction 
Beneficiary Decision-maker 

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In case of non-connectivity one jurisdictional level (usually the central) determines the 
fulfillment of tasks while the other levels have to administer and sometimes also to 
finance those tasks. This management by order influences the fiscal capacity and the 
behavior of the jurisdictions. If parts of the public expenditures are financed by the 
taxpayers of other jurisdictions (vertical or horizontal fiscal equalization) the congru-
ency is more or less heavily impaired, too. Grants and intergovernmental transfers do 
have the character of a present without any local or regional expense loading so that 
the local and regional responsibilities might be negatively influenced. Often the sup-
ply of public goods is then exaggerated with the consequence of wasting public 
funds.
This threat is always existing and cannot easily been controlled by the taxpayers of 
the other jurisdictions due to the fact of often complex regulations regarding tax shar-
ing and fiscal equalization as well as lacking information. All this is often leading to 
discontent with the political system, mistrust in government and reduced acceptance 
for democratic steered solutions in open societies. Therefore, good governance and 
modern public management lays the stress more upon the benefit principle and fi-
nancial means in which the taxes do play more the role of market pricing. Whereas 
the often named ability-to-pay principle of taxation is more bound to the distributive 
and redistributive aspects and neglects the relation in between cost and benefits, the 
benefit principle is much more bound to self-responsibility and the voter’s evaluation 
of the jurisdictional performance in comparison to the tax burdens.
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Institutional in-
congruency and non-connectivity harm fiscal responsibility of the different jurisdic-
tional levels; the exploitation of one and more jurisdictional levels by others becomes 
possible. This fact has seriously to be taken into consideration if an efficient federal 
system has to be designed.