1. Zero Draft September 1, 2009 Conditional VS. Unconditional Grants: The Case of Developing Countries Roy Bahl Georgia State University Workshop on Intergovernmental Fiscal Relations Copenhagen, Denmark September 17-18, 2009

2. DEFINITIONS Transfers Taxes Data Problems

4. WHAT IS CONDITIONALITY? Mandates (Funded or unfunded) Pre-qualification Match Vertical Sharing Conditions

5. JUSTIFICATIONS FOR TRANSFERS Vertical Balance Equalization Externalities, National Purpose Administration Political Justification and Paternalism

7. Vertical Sharing Shared Tax (U) Ad Hoc(C) Cost Reimbursement (C)

8. HORIZONTAL SHARING Derivation (U) Formula (C) Cost Reimbursement (C) Ad Hoc (C)

9. THE CASE FOR CONDITIONAL GRANTS Externalities National Purpose Avoid Corruption, Incompetence Bureaucratic Politics

11. THE CASE FOR UNCONDITIONAL GRANTS Local Autonomy Fungibility of Money Lower Monitoring, Compliance Costs