Fiscal Decentralisation in a Divided State: Bougainville in Papua New Guinea

AuthorSatish Chand
Published date01 December 2018
Date01 December 2018
Subject MatterArticle
Satish Chand*
Is fiscal decentralisation in a polity divided by languages, cultures, tribes, and
geography a means to nation-building or a route to secession? I consider the case of
Bougainville in Papua New Guinea to provide nuanced information on the above
question. This case study reveals that fiscal decentralisation, agreed to as part of a peace
agreement signed in 2001 following a decade-long civil war in Bougainville, provided
the opportunity for national consolidation. However, tensions surrounding the
implementation of arrangements for budgetary support of Bougainville are forcing
further fracturing. A definitive answer to the question of whether fiscal decentralisation
helped or hindered nation-building will be provided by the referendum, due by mid-
2020, when the people of Bougainville will have the option to vote for independence
from Papua New Guinea.
Fiscal decentralisation has historically been a central feature of federal structures where
powers are devolved to subnational governments in a uniform fashion. Autonomous
arrangements build on the above by allowing asymmetrical (often territorially-based)
devolution where some subnational governments are granted exclusive powers and
functions (ie, privileges) vis-à-vis the rest of the nation.
Autonomies may be granted to
allow the subnational units to choose their political future, including the option to
secede; however, the units may instead choose to remain within the federation, given its
fiscal benefits. Incentives for unilateral secession rest on the level of tr ansfers received.
Consequently, fiscal arrangements can serve as the glue holding a federation together.
The success or otherwise of nation-building using fiscal transfers from the centre is
* Professor of Finance in the School of Business at the University of New South Wales, based
at the Australian Defence Force Academy, Canberra. I am grateful to Christine Bell, Usman
Chohan, Ron Levy, Anthony Regan, Thomas Webster, and an anonymous reviewer for
helpful comments on an earlier draft of this paper. Views expressed and remaining errors are
those of the author alone, however.
Anthony Regan, Comparative Perspectives on Institutional Framework for Autonomyin
Yash Ghai and Sophia Woodman (eds), Practicing Self-Government: A Comparative Study of
Autonomous Regions (Cambridge University Press, 2013).
Alberto Alesina, Spolaore Enrico and Romain Wacziarg, Economic Integration and Political
Disintegration(2000) 90 American Economic Review 1276.

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