Fiscal decentralisation and intergovernmental fiscal relations in Palestine

Abstract

The local government in the West Bank and Gaza has its origins in the middle of the last century (UNDP-PAPP 2003). The design of the legal framework and administrative systems were based not on local needs but mainly on the requirements of the Ottoman Empire, British Mandate, Jordanian era in the West Bank, Egyptian military rules in Gaza Strip, and Israeli occupation all of which were concerned more with security than with developmental aspirations of its constituency. Local government laws were therefore designed mainly to maintain the central control and to provide the minimum of the public goods at the local level. Meaningful decentralisation in the sense of a democratic representation in local governance was not a policy objective until the Palestinian Authority (hereafter the PA) was established (Al-Araj 1998). The local government units, the Ministry of Local Government and the donor community show a growing interest on issues related to fiscal and administrative decentralisation. Many workshops have been organised in recent years to discuss different aspects of fiscal decentralisation, but to our knowledge none in-depth studies have been conducted. In an earlier joint paper Fjeldstad and Zagha (2002) discussed the factors explaining the tax system in the PA. In this respect, it was found that the limited trustworthiness in the PA was closely linked to citizens' perceptions of the capacity of the PA to make credible commitments about the use of tax revenues and foreign aid, as well as its procedures for designing and implementing fiscal policy non-arbitrarily. Moreover, the study found that extensive and increasing corruption contributed to undermine popular confidence in the PA as a credible force in the struggle against the Israeli occupation. These findings have implicitly implications for policies to devolve fiscal and administrative powers. Local authorities are the branch of the government which is 'closest' to the citizens. Hence, it is perceived that the strengthening of local authorities represents an important building block in the peace process, as well as in the Palestinian state formation process. Political and administrative reforms are still underway in the PA (ARD 2000a, 2000b; C3 Management and Economic Consulting, Adam Smith Institute and Center for Continuing Education at Birzeit University: Project on Public Administration and Civil Service Reform 2003-2006). An important challenge facing these reforms is related to the resourcing of local authorities, including the establishment of credible and transparent intergovernmental fiscal relations. Sabri and Jaber (2006), pointed out that the relations between local governments and ministry of finance are the most significant issue in the Palestinian local authorities,