Publication: Fiscal Decentralization in Developing and Transition Economies: Progress, Problems, and the Promise
Date
2004-04
ISSN
Published
2004-04
Author(s)
Abstract
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.
Citation
“Shah, Anwar. 2004. Fiscal Decentralization in Developing and Transition Economies: Progress, Problems, and the Promise. Policy Research Working Paper;No.3282. © World Bank, Washington, D.C.. http://hdl.handle.net/10986/14114 License: CC BY 3.0 IGO.”
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