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This paper examines the constraints that negative externalities (i.e., smuggling from a large neighbor) impose on the application of automatic fuel price adjustment mechanisms. It is often recommended to establish an automatic price adjustment mechanism to reduce fuel subsidy expenditures, but this approach may not work in the presence of these externalities. The paper illustrates the constraints by examining the case of Nigeria, a major oil exporter that subsidizes gasoline, and that of Togo, an oil importer and neighbor of Nigeria. It finds that the price differential between formal prices in Togo and Nigeria is the main driver of changes in formal sector gasoline consumption. Specifically, the lower the formal price in Nigeria, the higher is smuggling from Nigeria to Togo, and the lower the tax base in Togo. The econometric results suggest that, unless the real economy is performing very well, increases in pump prices in Togo are likely to erode the tax base, unless there are greater border controls. The unintended consequences of Nigeria’s pricing policies are the constraint they impose on fuel pricing policies of its neighbors and the subsidy Nigeria transfers to them (equivalent to at least 3 percent of Togo’s GDP in 2011), three-quarters of which was captured by smugglers in 2011, while one-quarter enhanced consumers surplus through lower gasoline prices.

Investments: Energy --- Macroeconomics --- Public Finance --- Macroeconomics: Consumption --- Saving --- Wealth --- Energy: Demand and Supply --- Prices --- Trade Policy --- International Trade Organizations --- Taxation, Subsidies, and Revenue: General --- Energy: General --- Public finance & taxation --- Investment & securities --- Consumption --- Fuel prices --- Anti-smuggling --- Revenue administration --- Gasoline --- National accounts --- Commodities --- Economics --- Smuggling --- Revenue --- Gas industry --- Nigeria

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Fiscal decentralization is becoming a pressing issue in a number of countries in sub-Saharan Africa, reflecting demands for a greater local voice in spending decisions and efforts to strengthen social cohesion. Against this backdrop, this paper seeks to distill the lessons for an effective fiscal decentralization reform, focusing on the macroeconomic aspects. The main findings for sub-Saharan African countries that have decentralized, based on an empirical analysis and four case studies (Kenya, Nigeria, South Africa, Uganda), are as follows: • Determinants and effectiveness: Empirical results suggest that (1) the major driving forces behind fiscal decentralization in sub-Saharan Africa include efforts to defuse ethnic conflicts, the initial level of income, and the urban-ization rate, whereas strength of democracy is not an important determi-nant for decentralization; and (2) decentralization in sub-Saharan Africa is associated with higher growth in the presence of stronger institutions. • Spending assignments: The allocation of spending across levels of gov-ernment in the four case studies is broadly consistent with best practice. However, in Uganda, unlike in the other three case studies, subnational governments have little flexibility to make spending decisions as a result of a deconcentrated rather than a devolved system of government. • Own revenue: The assignment of taxing powers is broadly in line with best practice in the four case studies, with the bulk of subnational revenue coming from property taxes and from fees for local services. However, own revenues are a very small fraction of subnational spending, reflecting weak cadaster systems and a high level of informality in the economy.

Decentralization in government --- Fiscal policy --- Economic development --- Africa, Sub-Saharan --- Economic integration. --- Development, Economic --- Economic growth --- Growth, Economic --- Economic policy --- Economics --- Statics and dynamics (Social sciences) --- Development economics --- Resource curse --- Tax policy --- Taxation --- Finance, Public --- Centralization in government --- Devolution in government --- Government centralization --- Government decentralization --- Government devolution --- Political science --- Central-local government relations --- Federal government --- Local government --- Public administration --- Government policy --- Africa, Black --- Africa, Subsaharan --- Africa, Tropical --- Africa South of the Sahara --- Black Africa --- Sub-Sahara Africa --- Sub-Saharan Africa --- Subsahara Africa --- Subsaharan Africa --- Tropical Africa --- Economics: General --- International Economics --- Public Finance --- Macroeconomics --- Political Economy --- International Agreements and Observance --- International Organizations --- Fiscal Policy --- National Government Expenditures and Related Policies: General --- Taxation, Subsidies, and Revenue: General --- Aggregate Factor Income Distribution --- Political economy --- International institutions --- Public finance & taxation --- International organization --- Fiscal federalism --- Expenditure --- Revenue administration --- Income distribution --- National accounts --- International agencies --- Expenditures, Public --- Revenue --- South Africa

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Migrant remittances --- Envois de fonds des travailleurs migrants --- Moldavia --- Moldavia --- Moldavie --- Moldavie --- Economic policy --- Economic conditions --- Conditions économiques