Philippines

The chapter analyzes the impact of fiscal transfers on local democracy in the Philippines, focusing on the interplay between decentralization, autonomy, and dependence. It analyzes how intergovernmental transfers have shaped local government units’ (LGUs) capacity to deliver services, raise revenues, and exercise policy discretion. While increased transfers have significantly expanded LGUs’ fiscal space and the potential to address local priority needs, many of them still remain highly dependent on national funds, constrained by their limited ability to generate revenue. The chapter highlights the political dynamics surrounding fiscal transfers, including risks of patronage, fiscal dependency, and the “flypaper effect,” where LGUs spend more of the transfers rather than mobilize their own resources. While fiscal transfers are essential for equity and local development, the local governments’ ability to strengthen local democracy depends on capacity-building, stronger accountability mechanisms, and enhanced fiscal autonomy.