Factors affecting municipal fiscal capacity in Thailand

Abstract

The purpose of this research is to 1) study various characters on the development of revenue structures and fiscal capacity of municipalities in Thailand, 2) investigate the relationship among factors affecting the municipal fiscal capacity, and 3) propose policy recommendations regarding improving and heightening the municipal fiscal capacity to different concerned agencies.

Initially, conduct the part of the literature review, which led to the scope of the study and the quantitative research, which was employed. Annual secondary data of 2,441, which were in a form of pooled cross-section data from 2012-2015, were used along with the analysis on the operating ratio and ordinal logistic regression analysis.

The findings on the municipal revenue structure during the past four years reveals that revenues of most municipalities are from government allocations and grants, as high of a proportion as 88.95% whereas their local levied taxes are comparably small. In addition, the analytical results also show that overall municipalities possess fiscal capacity at a low level, especially the larger ones, as the larger they are, the lesser their fiscal capacity since they need to provide broader public services.

The empirical theoretical test discloses that 1) organizational resource theory on an issue of socio-economic factors is both an internal factor of availability within municipalities and an external factor which provides additional advantages over others and that the socio-economic factors play an important role in municipal fiscal

capacity. 2) Having an institutional model is the result from formats and attributes set by the Municipal Act which makes municipalities possess a similar character. 3) The relationship built on years of election is due to the trends of decentralization and governance being globally popular that further results in the maximum utilization of resources to cope with more demand of public services, which in turn is consistent with the theory of political business cycles. 4) There is a non-existent relationship between intergovernmental transferring of funds through nonexistence, which is an important measurement in closing fiscal gaps while enhancing municipalities in organizing public services, which helps, create equality among regions and locals of differences in fiscal capacity.

The policy recommendations include 1) the government should focus more on area development contexts in order to minimize fiscal structure stress which is the primary problem occurring from basic character of community faults. 2) The government should modernize some legislation policies especially the ones related to municipal levied tax in order to clearly guide municipalities to set a more suitable method of tax collection. 3) The government should encourage municipalities especially the sub-district to work proactively on the issues of revenue collecting and raising to lessen its dependence on government grants and allocations as well as efficiently and effectively improve its expenditure administration.