In nations with decentralized or federal systems of governance, public finance responsibilities are split between the central government and local or county authorities.
Fiscal Devolution
Fiscal devolution involves shifting financial powers from the central government down to local governments. It is built on three core pillars:
  • Assignment of Expenditures: Deciding which level of government manages specific public services. Local governments typically handle community-level services like primary healthcare, local markets, and sanitation, while national governments manage large-scale services like national defense and trunk roads.
  • Assignment of Revenues: Granting local governments the power to collect specific local taxes and fees (e.g., property rates, business permits, parking fees, and market tolls) to fund their budgets.
  • Fiscal Transfers (Grants): Central governments provide financial transfers or equitable revenue shares to local authorities to bridge the financial gap between local revenue collections and local expenditure needs.

+--------------------------------------------------------+

|                 Central Government                     |
| Focus: Macro-stabilization, defense, national roads    |
+---------------------------+----------------------------+
                            |
                            | Fiscal Transfers / Grants
                            v
+--------------------------------------------------------+

|                  Local / County Governments            |
| Focus: Local healthcare, sanitation, local markets     |
| Revenue: Property rates, business permits, park fees   |
+--------------------------------------------------------+

 
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