A Critical Assessment of the Practices of Fiscal Federalism in Ethiopia: The Case of Oromia and Afar Regional States (1991–2015)
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Date
2023-06-23
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AAU
Abstract
The main objective of this dissertation was to assess the practices of fiscal federalism in
Ethiopia (1995- 2015) with reference to Federal-Regional interface and Woredas
(districts) context by selecting two Regional States; namely Oromia (representing the
relatively 'developed regions') and Afar (representing the 'emerging regions'). The study
employed more of qualitative research approach to achieve the objective mentioned
above. Both Primary and secondary data sources were used in gathering relevant data
for the study. The techniques that have been used for gathering primary data are in-depth
interview and discussion with key-informants at all levels of governments focusing on
group discussion with local communities and field observation. Secondary data were
gathered from published and unpublished materials available in various forms including
books, journal articles and official annual reports of government institutions at federal,
regional and local levels. The study also reviewed the experiences of some federal
countries around the world on the issue of fiscal federalism with the aim of obtaining best
practices and use as input in modifying the decentralized fiscal system of Ethiopia. To
analyze the date gathered through above means, the study employed both qualitative and
quantitative methods of data analysis.
The findings of the study indicated that the Constitutional assignment of expenditure
responsibility in Ethiopia is more or less in compliance with the theoretical literature of
fiscal federalism while the assignment of taxation power does not agree with the
theoretical and empirical literatures of fiscal federalism. The practice, however, shows
lack of clarity on the assignment of power and fiscal responsibilities, particularly on
shared responsibilities. As the result, it creates duplication and overlapping
responsibility problems and may lead to conflict between federal and regional
governments as well as regional and local governments. The findings also show that the
devolution of expenditure responsibilities to the sub-national governments (SNGs) is not
accompanied by adequate financial resources, resulting in high vertical and horizontal
fiscal imbalances in Ethiopia. As the result, SNGs in Ethiopia rely heavily on federal
transfers to cover the costs of the functions that devolved to them by laws. This, in turn,
limits the fiscal autonomy of authorities at sub-national levels, which adversely affected
the efficiency of public service delivery and accountability at the grass root levels.
Overall, the study found out that there are several problems and challenges faced while
implementing fiscal decentralization at sub-national levels in Ethiopia. It includes lack of
clarity in the assignment of power and fiscal responsibilities, particularly on shared
responsibilities; lack of fiscal autonomy due to insufficient own revenues; weak
administration and institutional capacity. This happened because of lack of trained and
experienced human resources; poor political willingness and commitment of authorities
at higher level to devolve taxing and spending powers in real sense; as well as lack of a
stable, predictable and transparent intergovernmental fiscal transfer system. Thus, the
research recommends that the federal government should give more emphasis to enhance
the fiscal autonomy of sub-national governments so as to realize the potential benefits of
effective fiscal federalism in Ethiopia.
Fiscal Federalism, Assignment of expenditure, taxing responsibility, vertical
fiscal imbalance, Fiscal autonomy and Intergovernmental fiscal transfer
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SOCIAL SCIENCES::Business and economics