Disequalizing Equalization Transfers: Politics of Intergovernmental Transfers in Khon Kaen Province

Abstract

Public finance literature dictates that intergovernmental transfers are an important public policy instrument to help alleviate horizontal fiscal imbalances among local jurisdictions. These so-called equalization grants enable financially strapped local authorities to provide essential services to their constituents. This underlying logic of intergovernmental equalization transfers requires the amount of intergovernmental transfers to be inversely related to each local jurisdiction’s revenue-generating capacity. However, intense politicking in many countries turns the design of equalization grants into a battle of regional and local interests; in contrast to the public economic theory, a politicized intergovernmental fiscal transfer system induce greater horizontal imbalances among diverse local government units, consequently compromising the quality and quantity of local public services. The case in point illustrates the disjuncture between the theory and practice of intergovernmental equalization transfers by unveiling the political dynamism of intergovernmental relations in Khon Kaen Province.

In this case study, both primary and secondary data sources were used to showcase the complex relationship among national politicians, central government bureaucrats, and local officials in deciding on the amount of local government transfers in each annual budget cycle. In-depth interviews with the high-ranking local officials were conducted in several local jurisdictions in Khon Kaen to understand the strategies they employed in swaying the national government’s grant allocation decisions. In addition, a five-year retrospective analysis of each local government unit’s financial data was performed to demonstrate the configuration of fiscal difficulties (e.g., deficit, surplus, short-term debt, long-term debt) facing the Khon Kaen local governments.