Each revenue instrument has a different impact on consumer behavior and a different pattern of incidence. User charges, such as bus fares or charges for metered water, can be used to ration efficiently the consumption of goods whose benefits are largely private. Because social safety nets are often considered a national responsibility, for example, intergovernmental transfers for education, health, and income support are common in both developed and developing countries. The objectives of a given transfer and the administrative constraints under which it operates should determine how it is designed. What does not vary is the need to make transfers simple, transparent, and predictable, to help eliminate the uncertainty and bargaining that often plague intergovernmental fiscal relations.
Borrowing is an increasingly controversial part of the intergovernmental relationship.
In countries with weak domestic capital markets, central governments have been the primary source of local credit, often providing it through specialized lending institutions. The financial record of these institutions is mixed. They have been successful in Europe, less so in developing countries. In countries with more developed domestic capital markets or better access to international markets, subnational governments are increasingly turning to the private sector for credit. In principle, such loans should be straightforward transactions between subnational governments and private lenders.