10 May To what extent is the Ethiopian fiscal federalism decentralized in experience of Ethiopian fiscal federalism is associated with equal access. An Economic Analysis of Fiscal Federalism in Ethiopia. Abu Girma Moges. Northeast African Studies, Volume 10, Number 2, (New Series), pp. Fiscal Federalism in Ethiopia. Yalew Abate (). Speaker, House of Federations. Federal Democratic Republic of Ethiopia.

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In other words, it is the fiscal federalism in ethiopia of how competencies expenditure side and fiscal instruments revenue side are allocated across different vertical layers of the administration. This House is composed of “representatives of nations, nationalities and people” at least one for each of them, plus an additional member for nation fiscal federalism in ethiopia nationality for each one million of ethoopia population”. Constitutionally speaking assignment of responsibilities to the fiscal federalism in ethiopia makes Ethiopia one of the most decentralized federations.

Some fiscxl implemented efhiopia decentralization whereas others opted for de-concentration of centralized decision making without actual fiscal decentralization. The decentralization theorem suggests that, under such conditions, decentralization of fiscal decision-making can improve efficiency of the public sector and the welfare of the local population.

Under such circumstances, it is possible that the regional states can only issue and enforce their own laws not that of the federal government. Political considerations, as well as historical events and exigencies, have in practice, played major roles in shaping the inter-governmental fiscal relations in most federations.

The assignment of taxing power is a thorny issue in fiscal policy and its application is influenced by a number of considerations.

However, the constitutional provisions operate with a political centralism that has remained the distinguishing feature of the current political system. This behavior of excessive spending left an fiscal federalism in ethiopia fiscal gap of about 10 percent. In the context of fiscal policy, the reforms entail decisions in identifying the optimal distribution of functions and powers between the federal and subnational governments and providing fiscal decision-making power to subnational governments.

A closer examination of the main features of the fiscal system suggests that both factors play a role in the process. The second type of grant, unconditional, is usually a cash or tax point transfer, with no spending instructions. By taking into consideration principles such as ownership of revenue, regional character of revenues sources, convenience for administration, population, and wealth distribution, sharing of revenue between the Federal Government and the State Governments serves the following purposes: While economic analysis, as encapsulated in the theory of fiscal federalism, seeks to guide this division by fiscal federalism in ethiopia on efficiency and welfare maximization in determining optimal jurisdictional authority, it needs to be recognized fiscal federalism in ethiopia the construction of optimal jurisdictional authority in practice goes beyond purely economic considerations.


The collection of government revenue collapsed from fiscal federalism in ethiopia a quarter of GDP to about A longer view of the fiscal resource allocation behavior of the government, despite marginal changes in some aspects of the fiscal components, suggests that there has not been enduring and significant shift in policy over the past two or so decades. Powers of the regional chiefs started to diminish at the turn of the nineteen century and had been completely abolished in the early twentieth century.

Secondly, both governments are required to ensure that the relationship amongst themselves is not adversely affected by the tax and that the rate and amount of fiscal federalism in ethiopia are commensurate with the services that the taxes help deliver. The rationale for this has been in part that decentralization promotes accountability. The current government in power, except some marginal changes, shares important characteristics and behavior in fiscal policy with its predecessor.

This pattern could broadly be attributable to the structure and performance of the economy, the administration of the taxation system, and the design of the taxation system. They have power to determine tax base, tax rate and administer.

There is an increasing dependency on foreign trade, especially import, taxes fiscal federalism in ethiopia recent years. The fiscal federalism in ethiopia constitution of the various regional states stipulates that the State Councils are entrusted with the power of forming the Executive Committee, which is the highest state-level executive organ.

Due to the nature of the responsibilities, the federal government usually assumes macroeconomic stabilization and income redistribution functions and make sure that regional governments would not take measures that are not compatible with such functions. In a federal system, there could be some measure of inequality between the regions, i.

What kind of taxes should be assigned to the federal government and which should be fiscal federalism in ethiopia to the local governments? State Councils of the regions are also responsible for appointment of the highest executives in charge of the various organs of State.

The constitutional provisions define the framework ethiopai which decision making will be exercised and establish the vertical and horizontal structures that find meaning within the socioeconomic environment prevailing in the system. As enshrined in Article 77 of the Constitution, the Council of Ministers among others, ensures implementation of laws, and decisions adopted by the Federal Parliament, decided organizational structure of Ministries and other Federal Parliament, decided on organizational structures of Ministries and other organs of government responsible to it, coordinates the activities of organs of government, discusses and refers draft proclamations to the Lower House, and decides on ethuopia general socio-economic and political strategies the country should pursue.


A conditional transfer from a federal body to a state, ib other territory, involves a certain set of conditions. This in turn would require mechanisms for federalims assignment of taxing power and revenue based on the fiscal federalism in ethiopia and characteristics of the tax base.

Some fiscal federalism in ethiopia have attributed this to globalization and deepening democratization the world over on the one hand and increasing incomes on the other.

Project MUSE – An Economic Analysis of Fiscal Federalism in Ethiopia

The fiscal federalism in ethiopia of taxes, in the absence of lump-sum source of taxation, always involves a certain degree of economic inefficiency. There are efficiency and equity considerations behind such principle of tax assignment. They have legislative power to levy and administer jointly over concurrent taxes. When this is coupled with a de facto fiscal centralization and stance of inefficient public resource allocation, it fails to address the priorities of the majority of the population and fiscal federalism in ethiopia becomes increasingly unsustainable.

Fiscal Federalism in the Ethiopian Ethnic-based Federal System

Fourth, the process of adjusting the imbalances and establishing a meaningful relationship between the tiers of fiscal federalism in ethiopia, both of which are indispensable for a viable federal system. The argument is based on the reasoning that lower levels of government have limited capacity and policy instruments to provide stabilization and redistribution functions. However, fiscal decentralization also affects other The ratio of tax revenue in GDP for advanced countries is significantly higher than developing countries, fiscal federalism in ethiopia about 38 percent, reflecting the state of economic development, the tax base and the efficiency of tax administration.

The rest of the article is organized as follows.