A well-structured transfer equalisation system is a crucial element of local funding, which notably enables combat against horizontal budgetary imbalances. The implementation of these mechanisms is necessary to mitigate various factors, such as poverty or population growth in certain municipalities. However, despite the increase in inequalities of revenue among local authorities around the world, few countries use effective equalisation grants to enable more egalitarian access to resources.
In Africa, only a couple of countries (Morocco and South Africa) have introduced these equalisation grants, while in the Middle East-Western Asia region they do not exist at all. The situation is a little better in Latin America, where certain States (for example Brazil and Chile) use equalisation, but most have only retained a handful of elements, which they have incorporated into their revenue sharing programmes. Several Asian countries use equalisation transfers (Australia, Indonesia, Japan), while others ignore budgetary disparities (China, India, the Philippines, New Zealand). Equalisation subsidies are used in Eurasia, Europe and North America (but not at federal level in the United States), with varying degrees of success.
Conditional transfers granted by the State or intermediary authorities also make up part of local budgets. They serve to promote national standards and objectives for the provision of decentralised services such as, for example, certain aspects of education and health. They also help manage inter-administrative externalities regarding, for example, environmental or local investment issues.
Conditional transfers exist in many countries, particularly for infrastructure investments. Nevertheless, in certain regions such as Eurasia, conditional transfers are still at the embryonic stage. Other countries, like Egypt, Nigeria, Tanzania and Uganda rely almost exclusively on conditional transfers. This type of grant frequently entails several difficulties: their number and complexity, meaning high implementation costs for local authorities; their lack of transparency and stability, including timescales, and the risk of political manipulation. Furthermore, over-reliance on conditional transfers can mean hefty constraints on the autonomy of local authorities and drive them to neglect local priorities in favour of national priorities, thereby destroying everything that gives them their strength.
Grants based on performance and innovation
They are relative newcomers in the field of transfers. They have generally been introduced in certain African and Asian countries under the influence of international organisations. The local governments generally remain free to decide the best way to use the funds. This type of transfer brings together the flexibility of unconditional grants with an atypical form of conditionality. They can, however, end up favouring the municipalities with the greatest administrative prospects, and risk reproducing the defects of traditional aid programmes. To date, they have served above all to promote respect for financial and administrative management procedures, not to improve the provision of services. It is too early to pronounce definitive judgement on the effectiveness of this type of grant.