Fiscal Tranfers, Centrally-Provided Local Public Services and Fiscal Balance: Exploring Alternative Transfer Formulas

A conceptual framework is developed and used to estimate the Internal Revenue Allotment (IRA), other central fiscal transfers and the funds for local public services directly provided by national government agencies in the Philippines. The estimates show that the total central resource transfers to local government of their constituencies have been increasing during the period 1995-99. The bulk of these transfer was the centrally-provided local public services, whose allocation however may have aggravated the fiscal imbalances across local government units. However, improvements in the fiscal imbalances achieved solely through an adjustment in the current IRA formula would be minimal or very costly to either some local government units or to the national government. The results therefore suggest a more consistent allocation of the IRA and other fiscal transfers and, possibly, the further devolution of the centrally-provided local public services.