This paper examines how decentralization affects governance, in particular how it might increase political competition, improve public accountability, reduce political instability, and impose incentivecompatible limits on government power, but also threaten fiscal sustainability. If a state does not sup port the details of tax decentralization, for example, it need not embrace the new system immediately. Government privatizes or deregulates private functions. James ford, for example, elaborates five basic conditions for a successive decentralization ford, 1998. Fiscal decentralization policies can assume different institutional forms. Different types of decentralization should be distinguished because they have different characteristics, policy implications, and conditions for success. Applying a sequential twostage estimation for the panel data of 62 provinces of vietnam over the 20062015 period, we. Indeed, it is important to clarify the concept of fiscal decentralization, as well as its various components. Much of the recent worldwide trend towards devolution has been driven by the belief that fiscal decentralization is likely to have a positive effect on government efficiency and economic growth. A centralized political system has a central authority with most or all of the power. A framework for the assessment of fiscal decentralization system fiscal decentralization provides the link between incentives for better performance of the local government and the elected support from the citizens and is, therefore, essential for an effective system of decentralization.
Financial responsibility is a core component of decentralization. In a nutshell, it means a central authority doesnt have control over a system, but control is distributed among the participants in the system. Distribution of conditional transfers contents acknowledgements 3 1. An example of deconcentration is the delegation of functions to semipublic and semiautonomous entities. The concept of decentralization refers to decentralized, directed fromcenter to periphery, organized around and such. Second, decentralisation and its fiscal components needs to be viewed as a process and not an end point. Types of decentralization types of decentralization include political, administrative, fiscal, and market decentralization. A study of the impact of decentralization on access to service delivery a dissertation presented to the academic faculty by pablo a. The views expressed in this publication are those of the authors and do. In terms of decentralization as a process of change, and according to the level of transfer of responsibilities, it is useful to distinguish between deconcentration, delegation and devolution. It is therefore worthrevisiting what weknowabout politicalandeconomic institutions to understand how and under what circumstances decentralization can be beneficial. The above quote drawn from a recent undp document underscores the need to develop a better understanding of the concept.
Assessment of fiscal decentralization influence on social and economic development. What is decentralization and explain its advantages and. First, economic growth is often cited as a major objective of fiscal decentralization bahl and linn 1, bird and wallich 4, oates. Hankla many developing countries are seeking to improve governance with fiscal decentralization. It provides an overview of fiscal decentralization for undp officers involved in policy debates on restructuring intergovernmental fiscal. South asia working paper series asian development bank. In some policy or program areas, it may be appropriate to provide for opting in provisions.
Decentralization financial definition of decentralization. One of the tasks associated with the thematic evaluation of undp supported. A realworld example of such a situation is mentioned by jin, qian and weingast 2001 when discussing the russian regionallocal government system. Fiscal decentralisation overseas development institute. On the contrary, as local communities are playing an increasingly important role in achieving the. This comes after a halfcentury of fiscal centralization in most. The rwanda fiscal decentralization strategy fds has been developed to guide the implementation of the government of rwandas fiscal and financial decentralization policy ffdp and is to be read and understood in collaboration with the decentralization policy dp and the rwanda decentralization strategic framework as amended to date. A study of the impact of decentralization on access to. Many developing countries are seeking to improve governance with fiscal decentralization. One important factor in determining the type of fiscal decentralization is the extent to which subnational entities are given autonomy to determine the allocation of their expenditures. Belgium, australia, germany, spain, switzerland and canada. Pdf assessment of fiscal decentralization influence on. Fiscal decentralization can also obstruct the redistribution role of the central government. This case is based on an improved allocation of resources in the public sector.
A restructuring of a functional structure to a productbased structure will generally involve some degree of decentralization, especially regarding operational but not strategic matters. It is therefore worth revisiting what we know about political and economic institutions to understand how and under what circumstances decentralization can be beneficial. The purpose of this chapter is to analyse the role of decentralization in addressing environmental problems. When is fiscal decentralization good for governance. Fiscal relations, 4 types of transfer, 5 the relationship between fiscal decentralization and regional economic growth. The conference, fiscal decentralization and land policies, was held in cambridge, massachusetts, in june 2007. Fiscal decentralization in a for the asia foundation. Information is provided on devolved tax powers, subcentral borrowing powers and fiscal transfer arrangements. In this case, previously concentrated powers to tax and. In this case, previously concentrated powers to tax and generate revenues are dispersed to other levels of government, e. This, however, does not mean that all forms of governments are fiscally federal, only that fiscal federalism is a set of principles that can be applied to all countries attempting fiscal decentralization.
On the theory and practice of fiscal decentralization wallace e. Fiscal decentralization also has become part of a worldwide reform agenda, supported by the world bank, usaid, the asian development bank, and many others, and has become an integral part of economic development and governance strategies in developing and transitional economies bahl, 1999a. If local governments and private organizations are to carry out decentralized functions effectively, they must have an adequate level of revenues either raised locally or transferred from the central government as well as the authority to make. Oates the traditional theory of public finance has made a strong case for a major role for fiscal decentralization. They also provide the finding that the definition of fiscal decentralization is important in relation to the effect of fiscal decentralization on economic. Reforms happen for different reasons and never start with a blank slate, meaning that reforms must be adapted to the existing institutional context. Fiscal decentralisation has a more ambiguous effect on inequality than on growth, especially for economies with a higher degree of openness. Fiscal and financial decentralization does not imply that the central government will abandon local communities. Supply and demand analysis, 6 fiscal decentralization and economic growth in both developed and developing countries literature survey and 7 implementation of fiscal decentralization in.
On the theory and practice of fiscal decentralization. Theory as reform james edwin kee, professor of public policy and public administration the george washington university abstract the last decade has seen a renewed interest in the concept of fiscal decentralization or fiscal federalism. Second, it discusses some of the arguments for decentralization, with allocative efficiency one of the main economic rationales for improving public welfare. Fiscal devolution some comparative examples 1 december 2014 1488 scherie nicol this briefing provides an overview of fiscal devolution in the following countries. It aims to shed light on the effectiveness of decentralization in improving the provision of public services. Finally, the governments emphasis on decentralization, as it relates to planning, is best contained in the three year interim plan fiscal year fy20082010, which, while necessarily 1 for example, the mld estimates that kathmandu district alone collects 40% of all revenues in the country. Fiscal decentralization can be achieved through user fees, user participation through monetary or labor contributions, expansion of local property or sales taxes, intergovernmental transfers of central government tax monies to local governments through transfer payments or grants, and authorization of municipal borrowing with national. Notes to the concept of decentralization pdf paperity. To guarantee a minimum level of public service and basic needs or standard of living for the entire population regardless of their geographical location, the central government often. Fiscal decentralization involves shifting some responsibilities for expenditures andor revenues to lower levels of government. Decentralization and the provision of public services. Available data essentially limit us to fiscal measures, and, following earlier work, we will use the fiscal share of the state government in the statelocal sector as our measure of fiscal centralization. Decentralization is a concept in politics, business, technology, and other fields. Fiscal decentralization by bernard dafflon the distribution of tasks among the different levels of government local, regional, national goes hand in hand with the competence of individual administrative authorities to collect taxes and assume responsibility for their budget.
Delayering often involves decentralization from middle management to line managers. In fact, fiscal federalism is a general normative framework for assignment of functions to the different levels of government and. The growth dimension of fiscal decentralization is emphasized for two reasons. Fiscal decentralisation and inclusive growth oecd fiscal federalism studies fiscal federalism 2016 making decentralisation work contents executive summary. The dispersal of authority of decisionmaking to the lower level management is termed as decentralization. Decentralization in management distributes responsibility and decisionmaking power in the hands of managers and employees at many levels of the organization. Analysis of decentralization processes shows that in the majority of cases, the processes have not gone beyond this stage.
Fiscal decentralisation, efficiency, and growth request pdf. Oates the point of departure for my contribution to this symposium is the striking contrast in the extent of fiscal centralization of the industrialized and the developing countries. Saavedracostas in partial fulfillment of the requirements for the degree of doctor in philosophy in the andrew young school of policy studies and the school of public policy. Fiscal decentralization and the efficiency of public. Fiscal decentralization and land policies presents the main contributions to a lincoln institute conference that addressed the effects of decentralization on local policies. An increase of transfers from the central government, the creation of new subnational taxes, and the delegation of tax authority that was previously national are all examples of fiscal decentralization. Moreover, for some countries, there is an apparent tradeoff between growth and equity, when it comes to the optimal degree of spending and revenue decentralisation. The main findings suggest that when fiscal decentralization is exercised with high horizontal and vertical imbalances, it fails to diversify public output in line with the. Decentralisation of authority is a fundamental phase of delegation and the extent to which authority is not delegated is called centralisation. The decentralization framework must link, at the margin, local financing and fiscal authority to the service provision responsibilities and functions. This concept, expressed asthe transfer of authority from the center to subordinate ends, is importantboth for more effective and productive management of the areas outside thecenter organization in public administration and for strengthening these areasin terms of democracy. It first proceeds with the definition of decentralization and examines the various forms it can take. First, it begins by presenting definitions of decentralization.
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