2007, Shah, Anwar

This book provides an overview of the principles underlying participatory budgeting. It analyzes the merits and demerits of participatory budgeting practices around the world with a view to guiding policy makers and practitioners on improving such practices in the interest of inclusive governance. This publication includes five regional surveys, and seven country case studies can be found on the accompanying CD ROM. The study explains that participatory budgeting has been advanced by budget practitioners and academics as an important tool for inclusive and accountable governance and has been implemented in various forms in many developing countries around the globe. It adds that through participatory budgeting, citizens have the opportunity to gain firsthand knowledge of government operations, influence government policies, and hold government to account. However, participatory processes also run the risk of capture by interest groups. Captured processes may continue to promote elitism in government decision making. This book examines the potential and perils of participatory budgeting, as observed from practices around the globe. It is divided into three parts. Part I presents the nuts and bolts of participatory budgeting. Part II surveys experiences with participatory budgeting in various regions of the world. Part III (Vol. 2) is on the CD ROM accompanying this book, and it examines case studies of practices in seven countries.

2012-06, Qibthiyyah, Riatu, Shah, Anwar, Dita, Astrid

Indonesia has come a long way from centralized governance to decentralized local governance, and today Indonesia ranks among the most decentralized developing countries. The Government of Indonesia is revisiting all aspects of local governance to make appropriate legal and institutional adjustments based on lessons leaarned during the past decade. An important area of this re-examination and possible reform is the central financing of subnational expenditures. The system of intergovernmental finance represents one of the most complex systems ever implemented by any government in the world. The system is primarily focused on a gap-filling approach to provincial-local finance in an objective manner to ensure revenue adequacy and local autonomy but without accountability to local residents for service delivery performance. This paper takes a closer look at Dana Alokasi Umum -- the most dominant program of unconditional central transfers to finance provincial-local government expenditures in Indonesia. The paper also presents illustrative simulations of alternative programs and compares these with the existing Dana Alokasi Umum allocations. The paper concludes that super complexity leads to lack of transparency, inequity, and uncertainty in allocation. Simpler alternatives are available that have the potential to address autonomy and equity objectives while also enhancing efficiency and citizen-based accountability. Such alternatives would represent a move away from the complex gap-filling approach to simple output-based transfers to finance operating expenditures. Capital grants would deal with infrastructure deficiencies. And the alternatives would institute fiscal capacity equalization as a residual program with an explicit standard to ensure that all local jurisdictions have adequate means to deliver reasonably comparable levels of public services at reasonably comparable levels of tax burdens across the country.

2012-03, Shah, Anwar

During the past decade, Indonesia has transformed itself from centralized governance to decentralized local governance. Local governments were given extensive expenditure responsibilities while keeping the tax system centralized. To finance decentralized provincial-local expenditures, Indonesia implemented a new system of intergovernmental finance. This paper provides a review of the equity and efficiency implications of the current system of central-provincial-local transfers. It finds that the system of intergovernmental finance represents one of the most complex systems ever implemented by any government in the world. The system is primarily focused on a gap-filling approach to provincial-local finance to ensure revenue adequacy and local autonomy but without accountability to local residents for service delivery performance. This is done through a great degree of academic rigor using highly complex procedures. The complexity leads to a lack of transparency, inequity and uncertainty in allocation as well as creating incentives for jurisdictional fragmentation and reducing own-tax effort. Simpler alternatives are available that have the potential to address equity objectives while also enhancing efficiency and citizen-based accountability. Such alternatives would represent a move away from complex gap filling and special allocation approaches to simple, output based transfers to finance operating expenditures. These would be complemented by capital grants to deal with infrastructure deficiencies, and fiscal capacity equalization as a residual program with an explicit standard to ensure that all local jurisdictions have adequate means to deliver reasonably comparable levels of public services at reasonably comparable levels of tax burdens across the country. The paper argues that such an alternative system of intergoveernmental finance would preserve autonomy, while enhancing equity, simplicity, objectivity, transparency and accountability.

2009-06-01, Shankar, Raja, Shah, Anwar

Regional disparities present an ever present development challenge in most countries, especially those with large geographic areas under their jurisdiction. A neglect of these inequities may create the potential for disunity and, in extreme cases, for disintegration. In view of this, most countries actively pursue policies with a view to helping lagging regions catch up with faster growing regions. These policies have at best a mixed record of success. It is therefore useful to discern what type of policies work and why? In this context learning from the experience of the European Union (EU) may be particularly instructive as, over the years, it has provided significant support to assist poorer regions achieve convergence with the richer regions. This paper reviews the impact of EU policies for regional development to draw lessons of interest to other countries pursuing similar goals. The paper concludes that policies that serve to create an internal common market by creating a level playing field that enables poorer regions to integrate with the broader national and global economies have the best potential to advance regional income convergence. In this context, removal of barriers to trade and factor mobility and providing enhanced access to information and technology to the lagging regions should be main policy priorities for regional development.

2011, Ivanyna, Maksym, Shah, Anwar

We attempt to improve the understanding and measurement of decentralization and its relationship with corruption in a worldwide context. This is done by presenting the conceptual underpinnings of such a relationship as well as using more defensible measures of both decentralization in its various dimensions as well as corruption for a sample of 158 countries. It is the first paper that treats various tiers of local governments (below the intermediate order of government) as the unit of comparative analysis. By pursuing rigorous econometric analysis we demonstrate that decentralization, when properly measured to mean moving government closer to people by empowering local governments, is shown to have a significant negative effect on the incidence of corruption regardless of the choice of the estimation procedures or the measures of corruption used. In terms of various dimensions of decentralized local governance, political decentralization matters even when we control for fiscal decentralization. Further voice (political accountability) is empirically shown to be more important in combating corruption than exit options made available though competition among jurisdictions.

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.

2010-01, Shah, Anwar

Intergovernmental finance is a significant source of sub-national finance in most countries. In both industrial and developing countries, formula based "manna from heaven" general purpose transfers dominate but co-exist with highly intrusive micro-managed "command and control" specific purpose transfers. Both these types of transfers undermine political and fiscal accountability. Reforms to bring in design elements that incorporate incentives for results-based accountability are resisted by both donors and recipients alike. This is because the donors perceive such reforms as attempts at chipping away at their powers and recipients fear such programs will be intrusive. This paper presents conceptual and practical underpinnings of grant designs that could further simplicity, objectivity, and local autonomy objectives while furthering citizen-centric results-based accountability. The paper further highlights a few notable recent initiatives in both industrial and developing countries that embrace such directions for reform. The paper concludes that results-based intergovernmental finance offers significant potential to minimize tradeoffs between local autonomy and accountability while furthering access to merit goods.

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.

2012-03, Shah, Anwar

This paper reviews the conceptual challenges as well as lessons from worldwide experiences in implementing public services and expenditure need compensation in fiscal equalization transfers with a view to developing guidance for practitioners. The paper concludes that while in theory a strong case for a comprehensive fiscal equalization can be made, in practice fiscal need equalization as part of a comprehensive equalization program introduces significant complexity. This works against the simplicity, transparency and general acceptability of the program. This does not imply that fiscal need equalization should be abandoned in the interest of simplicity and transparency. Instead simplicity, transparency and local autonomy are preserved by having fiscal need equalization through public service oriented (specific purpose block transfers) output based fiscal transfers that impose no spending requirements for any functions or objects of expenditures. Such transfers contrast with traditional earmarked transfers, which impose conditions on spending for specific purposes or objects of expenditure and subsequent verification/certification of such expenditures. Such output-based block transfers would further enhance citizen based accountability for results and thereby offer potential for enhancing public confidence and trust in government operations.

2010-01-01, Ivanyna, Maksym, Shah, Anwar

Governance indicators are now widely used as tools for conducting development dialogue, allocating external assistance, and influencing foreign direct investment. This paper argues that available governance indicators are not suitable for these purposes as they do not conceptualize governance and fail to capture how citizens perceive the governance environment and outcomes in their countries. The paper attempts to fill this void by conceptualizing governance and implementing a uniform and consistent framework for measuring governance quality across countries and over time based on citizens' evaluations. Using data from the World Values Survey (and other sources) we implement this framework into practice and build citizen-centric governance indicators for 120 countries over the period 1994 to 2005.