This chapter has a fairly specific agenda: it focuses on the relations between decentralization and poverty reduction. While the chapter does not avoid touching on broader decentralization–development linkages, the focus is on poverty. The chapter takes into account that decentralization may affect poverty directly and indirectly. Direct effects relate, for example, to regional and local targeting of financial transfers, while indirect effects may refer to the impact of decentralization on economic growth and on the effectiveness, coverage and efficiency of local public services for the poor (Sepulveda and Martinez-Vazquez, 2011). Decentralization is not a goal in itself. It is an instrument for efficient and participatory governance. It has emerged as one of the most important governance reforms in recent history: approximately 80 percent of all developing and transition countries have implemented this reform in the past three decades (Crawford and Hartmann, 2008; Work, 2002). A common argument in favor of decentralization is that it will contribute to poverty reduction ‘by bringing government closer to the people’ (Smith, 1996).
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