Local Fiscal Disparity: Case Study of Thailand’s Provincial Administrative Organization

Abstract

     This paper is a case study of local government finance in Thailand with primary focus on Provincial Administrative Organizations (PAOs). The Gini coefficients for PAOs’ per capita revenue are estimated, compared, and discussed. We hypothesize that revenue disparity led to inequalities in budget expenditures, local initiatives, and the chances of getting a “good local governance award”. Our empirical investigation is summarized as
follows. First, the Gini coefficients for own-collected revenue for FY2011 was 0.4, compared to 0.28 for shared taxes, and 0.23 for grant revenue—these confirmed the existence of fiscal disparity. Second, grant allocations failed to perform an equalization objective as those PAOs that collect more of their own revenue and shared taxes also tend to receive higher amounts of grant revenue per capita. Third, PAOs with high
revenue per capita had better chances of receiving a “good local governance award”. Fourth, there is a strong positive correlation between revenue and expenditure, i.e., a 100 percent increase in revenue led to a 95 percent increase in expenditure. Fifth, regarding the percentage of budget allocation for investment and wage compensation, there was not much difference between the high-income PAOs and the low-income PAOs, which is contrary to common expectation. However, the percentage of budget allocation for subsidy was significantly higher in the high-income PAOs than in the low-income PAOs.