Person:
Shah, Anwar

Global Practice for Governance, The World Bank

Fields of Specialization

governance; public sector reform; budgetary accountability;

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Global Practice for Governance, The World Bank

Last updated January 31, 2023

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Fiscal Decentralization in Developing and Transition Economies: Progress, Problems, and the Promise

(World Bank, Washington, D.C., 2004-04) Shah, Anwar

The author discusses the revolution in public sector thinking that is transforming the public sectors of developing and transition countries. Countries are reconsidering their fiscal systems and searching for the right balance between central government control and decentralized governance. Political decentralization has advanced in most countries. Subnational expenditures in developing countries as a percentage of total public expenditures have also increased over the past two decades. However, the process is far from complete. In many countries, the central government is still involved in the delivery of local services, local governments have few sources of own-revenues, local governments have limited access to borrowing for capital projects, and the design of intergovernmental transfers does neither address regional fiscal equity nor convey appropriate incentives for fiscal discipline, improved service delivery performance, and accountability to citizens. Decentralized public governance can help realign public sector incentives through greater accountability to citizens, and attenuate the "democracy deficit" caused by globalization and the role of supranational institutions and regimes. However, this requires careful examination of the entire fiscal system. Elements of a comprehensive package of fiscal system reforms would include: (a) Clarifying roles of various levels of government in public service delivery; (b) Reassigning taxing responsibilities to ensure local revenue autonomy, accountability, and efficiency without endangering an internal common market; (c) Designing fiscal transfers to ensure regional fiscal equity and to create an enabling environment for innovative and competitive service delivery; (d) Facilitating responsible credit market access to subnational governments; (e) Designing institutional arrangements for intergovernmental fiscal relations to better coordinate policies; and (f) Aligning operational capacity with the authorizing environment through the "accountability for results" framework of public management.
Implementing Decentralized Local Governance: A Treacherous Road with Potholes, Detours, and Road Closures

(World Bank, Washington, D.C., 2004-06) Shah, Anwar ; Thompson, Theresa

During the past two decades, a silent revolution in public sector governance has swept across the globe aiming to move decision making for local public services closer to the people. The countries embracing and adapting to this silent revolution have had diverse motives and followed even more diverse approaches. This paper attempts to present a stylized view of the motivations and approaches used to strengthen local governance. The quest for the right balance, i.e. appropriate division of powers among different levels of government, is not always the primary reason for decentralizing. There is evidence that the decentralization decision may have more to do with short-term political considerations than the long-run benefits of decentralization. To take stock of progress worldwide, we take a comparative look at developments in political, fiscal and administrative decentralization for a selected group of countries. Most of the decentralization literature deals with normative issues regarding the assignment of responsibilities among different levels of government and the design of fiscal transfers. The process of decentralization has not received the attention it deserves as the best laid plans can fail due to implementation difficulties. We revisit major controversies regarding preferred approaches to obtaining a successful outcome. Key approaches examined are big push versus small steps; bottom up vs. top down; and uniform vs. asymmetric decentralization. Finally, Indonesia's 1999 big bang decentralization program is evaluated. The program should be commended for its achievements over a short period of time, however incentives are lacking for local governments to be accountable and responsive to their residents.
Anti-Corruption Policies and Programs : A Framework for Evaluation

(World Bank, Washington, DC, 2000-12) Huther, Jeff ; Shah, Anwar

The anti-corruption strategy the World Bank announced in September 1997 defined corruption as the "use of public office for private gain" and called for the Bank to address corruption along four dimensions: 1) Preventing fraud and corruption in Bank projects; 2) Helping countries that request Bank assistance for fighting corruption; 3) Mainstreaming a concern about corruption in Bank work; and 4) Lending active support to international efforts to address corruption. The menu of possible actions to contain corruption (in both countries and Bank projects) is very large, so the authors develop a framework to help assign priorities, depending on views of what does and does not work in specific countries. Their framework, based on public officials' incentives for opportunistic behavior, distinguishes between highly corrupt and largely corruption-free societies. Certain conditions encourage public officials to seek or accept corruption: a) The expected gains from undertaking a corrupt act exceed the expected costs. b) Little weight is placed on the cost that corruption imposes on others. In a country with heavy corruption and poor governance, the priorities in anti-corruption efforts would then be to establish rule of law, strengthen institutions of participation and accountability, and limit government interventions to focus on core mandates. In a country with moderate corruption and fair governance, the priorities would be decentralization and economic reform, results-oriented management and evaluation, and the introduction of incentives for competitive delivery of public services. In a country with little corruption and strong governance, the priorities might be explicit anti-corruption agencies and programs, stronger financial management, increased public and government awareness, no-bribery pledges, efforts to fry the "big fish," and so on.
Bridging the Economic Divide within Nations : A Scorecard on the Performance of Regional Development Policies in Reducing Regional Income Disparities

(World Bank, Washington, DC, 2001-11) Shankar, Raja ; Shah, Anwar

Regional inequalities represent a continuing development challenge in most countries, especially those with large geographic areas. Globalization heightens these challenges because it places a premium on skills: since rich regions typically also have better educated and better skilled labor, the gulf between rich and poor regions widens. While central governments in unitary states are relatively unconstrained in their choice of policies for reducing regional disparities, in a federation the division of powers curtails federal flexibility in policy choice. Thus in federal states large regional disparities can represent serious threats, with the state's inability to deal with such inequities creating potential for disunity and, in extreme cases, for disintegration. Inequalities beyond a threshold may lead to calls for separation by both the richest and the poorest regions. While the poorest regional may consider the inequalities a manifestation of regional injustice, the richest regions may view the union with the poorest regions as holding them back in their drive toward prosperity. Under these circumstances, there is a presumption in development economics that decentralized fiscal arrangements would lead to ever widening regional inequalities. The authors provide an empirical test of this hypothesis. The authors conclude that regional development policies have failed in almost all countries, federal and unitary alike. Among 10 countries with high or substantial regional income inequality, only one (Thailand) has experienced convergence in regional incomes. Still, federal countries do better in restraining regional inequalities, because of the greater political risk these disparities pose for such countries. The authors classify countries by degree of convergence in regional incomes: a) Countries experiencing regional income divergence - Brazil, China, India, Indonesia, the Philippines, Romania, the Russian Federation, Sri Lanka, and Vietnam. b) Countries experiencing no significant change in regional income variation - Canada and Mexico. c) Countries experiencing regional income convergence - Chile, Pakistan, Thailand, the United States, and Uzbekistan. Regional development outcomes observed in these countries provide a revealing look at the impact of regional development policies. While countries experiencing divergence tend to focus on interventionist policies, those experiencing convergence have taken a hands-off approach to regional development and instead focused on promoting an economic union by removing barriers to factor mobility and ensuring minimum standards in basic services across the nation. In Chile, for example, convergence in regional incomes is largely attributable to liberalizing the economy and removing distortions so that regions could discover their own comparative advantage. In Pakistan and the United States convergence is attributable to greater factor mobility. Paradoxically, creating a level playing field helps disadvantaged regions more than do paternalistic protectionist policies.
Making Federalism Work : The 18th Constitutional Amendment

(World Bank, Washington, DC, 2012-11) Shah, Anwar

The almost unanimous passage of a landmark consensus constitutional amendment "the 18th Constitutional Amendment" restored Pakistan's constitution to its original intent of a decentralized federation of four provinces as envisaged in the 1956 and 1973 constitutions. This amendment was hailed by policy makers and academics alike as a major step forward in reforming the multi-order governance in Pakistan. This paper takes a closer look at the provisions of this amendment and highlights both the potentials and pitfalls of the new constitutional order for good governance in Pakistan. The paper concludes that the amendment must be seen as a first yet small and incomplete step in reforming multi-order governance in Pakistan. A large unfinished reform agenda remains to be charted.
Demanding to be Served : Holding Governments to Account for Improved Access

(World Bank, Washington, DC, 2008-06) Shah, Anwar

This paper presents an overview of the constitutional-legal provisions on access to services in developing countries and shows that rights to public services are not justice-able. It further documents the performance record to show that governments' response to such a weak accountability framework has been predictable - poor performance in service delivery with little accountability. The paper also shows that while there has not been a shortage of ideas on how to deal with this problem, most approaches have failed because they could not diagnose and deal with the underlying causes of government dysfunction. The paper presents an analytical perspective on understanding the causes of dysfunctional governance and the incentives and accountability regimes that have the potential to overcome this dysfunction. The paper also documents practices that have shown some promise in improving access. The paper then integrates ideas from successful practices with conceptual underpinnings for good governance and presents a citizen-centric (rights based) governance approach to access. It further explores how such a citizen empowerment and government accountability framework can be implemented in practice, especially in the context of developing countries, where most governments still operate in a command and control environment with little or no orientation to serve their people. It also presents ideas on how to overcome resistance to such reforms.
Corruption and Decentralized Public Governance

(World Bank, Washington, DC, 2006-01) Shah, Anwar

This paper examines the conceptual and empirical basis of corruption and governance and concludes that decentralized local governance is conducive to reduced corruption in the long run. This is because localization helps to break the monopoly of power at the national level by bringing decisionmaking closer to people. Localization strengthens government accountability to citizens by involving citizens in monitoring government performance and demanding corrective actions. Localization as a means to making government responsive and accountable to people can help reduce corruption and improve service delivery. Efforts to improve service delivery usually force the authorities to address corruption and its causes. However, one must pay attention to the institutional environment and the risk of local capture by elites. In the institutional environments typical of some developing countries, when in a geographical area, feudal or industrial interests dominate and institutions of participation and accountability are weak or ineffective and political interference in local affairs is rampant, localization may increase opportunities for corruption. This suggests a pecking order of anticorruption policies and programs where the rule of law and citizen empowerment should be the first priority in any reform efforts. Localization in the absence of rule of law may not prove to be a potent remedy for combating corruption.
Localization and Corruption : Panacea or Pandora’s Box?

(World Bank, Washington, DC, 2005-01) Gurgur, Tugrul ; Shah, Anwar

An extensive literature on the relationship between decentralization (or localization) and corruption has developed in recent years. While some authors argue that there is a positive relationship between decentralization and corruption, others claim that decentralization in fact leads to a reduction in the level of corruption. This important policy question has not yet been laid to rest, since previous empirical work simply uses eclectic regressions and lacks a conceptual framework to discover the root causes of corruption. This paper attempts to fill this void by presenting a framework in identifying the drivers of corruption both conceptually and empirically in order to isolate the role of centralized decision-making on corruption. The following results emerge: 1) For a sample of 30 countries (developing and industrial), corruption is caused by: a lack of service-orientation in the public sector, weak democratic institutions, economic isolation (closed economy), colonial past, internal bureaucratic controls and centralized decision making. 2) Decentralization is found to have a negative impact on corruption, with the effect being stronger in unitary than in federal countries.
The Reform of the Intergovernmental Transfer System to Achieve a Harmonious Society and a Level Playing Field for Regional Development in China

(World Bank, Washington, DC, 2006-12) Shah, Anwar ; Shen, Chunli

In China, most of the service delivery responsibilities are assigned to the subnational governments. Yet for reasons of efficiency in tax collection and administration, the central government collects revenues far in excess of its expenditure needs. In 2003 the central government collected 70 percent of consolidated revenues but accounted for only 30 percent of consolidated expenditures. The initial fiscal surplus of the central government enables it to use its spending power to provide financing to subnational jurisdictions for the achievement of national objectives and to influence local priorities. This paper examines the incentives associated with the design of such transfers and their implications for the efficiency and equity of public service provision and accountable local governance in China. The paper argues that the existing design of such transfers is not consistent with efficiency and equity considerations. It further undermines local autonomy without enhancing local accountability while creating incentives for imprudent fiscal management. Its main limitations include a complex and opaque system, a piecemeal approach to gap filling, lack of consistency of design with objectives, focus on input controls without regard for output accountability, incentives to support an antiquated management paradigm, a one-size-fits-all approach to local financing, and lack of transparency and regulatory framework for the intergovernmental transfer system. The paper makes specific suggestions on a reform of this system to overcome these limitations and on better use of fiscal transfers to create responsive, responsible, equitable, and accountable local governance in China.
How Close Is Your Government to Its People? Worldwide Indicators on Localization and Decentralization

(World Bank, Washington, DC, 2012-07) Ivanyna, Maksym ; Shah, Anwar

This paper is intended to provide an assessment of the impact of the silent revolution of the last three decades on moving governments closer to people to establish fair, accountable, incorruptible and responsive governance. To accomplish this, a unique data set is constructed for 182 countries by compiling data from a wide variety of sources to examine success toward decentralized decision making across the globe. An important feature of this data set is that, for comparative purposes, it measures government decision making at the local level rather than at the sub-national levels used in the existing literature. The data are used to rank countries on political, fiscal and administrative dimensions of decentralization and localization. These sub-indexes are aggregated and adjusted for heterogeneity to develop an overall ranking of countries on the closeness of their government to the people. The resulting rankings provide a useful explanation of the Arab Spring and other recent political movements and waves of dissatisfaction with governance around the world.