Impacts of States' Revenue Capacity on Self Administration under Ethiopian Decentralized Fiscal System: The Case of Oromia National Regional State

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Addis Ababa University


As it has become the Global concern, Ethiopia, since, 1991 has undertaken dramatic change by decentralizing political, Administrative and Fiscal decentralization from Federal government 10 autonomous State Governments and to District levels by the respective Regional Constilutions. Fiscal Decentralization, which is the subject mailer of this paper, is an important dimension of Decentralization which influences both Political and Administrative aspects of decentralization. This paper utilized both quantilative and qualitative method in describing and analyzing causes of high degree of vertical Fiscal Imbalance in Ethiopia and its impacts on principle of its Federalism particularly, on the self Administration of Regional Governments taking ORG as a case study on the base of primary data obtained through interviews conducted with tax officials and experts in Regional Revenue Authority, officials and experts in Regional BoFED and through questionnaires provided for selected informants and secondO/y data obtained in the mentioned regional Bureaus and MoFED. Here, what motivated the researcher to conduct the study on the topic is that, on the base ofthe1995 FDRE Constilution, Ethiopia adopted dual federal structure composing nine regional states and two cily administrations (Addis Ababa and Dire Dawa) by giving them the right to self determination expanding even up to secession (Article 39 of the constitution). Accordingly, regional governments are responsible for implementing economic and social development policies and for maintaining public order, including administering a Police force while the federal state is responsible for all powers not delegated to, or shared, with the regions. It can be observed that, the FDRE Constitution assigns various responsibilities to the lower units of governments in its expenditure side while on the Revenue side, however, it assigns more buoyant sources of revenues to the Federal government creating vertical fiscal imbalances which resulted in high dependence of States on Federal subsidy for the execution of these responsibilities. On one hand, the Constitution label Ethiopia as fully fiedged federal political system which claims the independence of each level of governments in relation to Constitutionally Delimited Spheres of its Jurisdictions pam the other. On the other hand, there exists much Vertical Fiscal Imbalance creating much dependence of States on Federal Government as they do not have Revenue Capacity even to cover half of their expenditure needs pam their Own Revenue Sources. The finding of this paper, point out that, the cause of vertical Fiscal imbalance in the study Region, shows the domination of Major Revenue bases by the Federal government than less commitment of tax collectors, tax evasion, corruption etc. Further, the paper, viewed that, less revenue capacity of the Region and high dependence on Federal Subsidy affects its constitutionally guaranteed self Administration (developing socio- economic and political affairs), its autonomy, quantity and quality of public services, accountability of officials. Finally the paper recommends that, revenue capacity of Regional Governments should be enhanced to enable them to exercise their constitutionally promised Self Administration by expanding their Olen Sources of Revenues and conducting effective Transfer System in the absence of sufficient Revenue Bases in some Regional Governments. Key words: Self Administration, Fiscal Decentralization, Revenue Capacity assignment, Revenue Capacity



Self Administration, Fiscal Decentralization, Revenue andfunclional assignment, Revenue Capacity