Studies in Fiscal Federalism and State–local Finance series
Edited by Ehtisham Ahmad and Giorgio Brosio
Chapter 5: The Politics of Partial Decentralization
* Shantayanan Devarajan, Stuti Khemani and Shekhar Shah 1 INTRODUCTION Despite its promise of achieving a better match between local preferences and public goods, decentralization—be it fiscal, administrative or political—has achieved decidedly mixed results. The reasons for this mixed outcome are many, but fall into two categories. One category assigns blame to the design of the decentralization. For instance, some governments decentralize only one or two of the trio of “funds, functions and functionaries”. In Pakistan, responsibility for education was transferred to the districts but teachers remained employees of the provincial government (World Bank, 2004b). Within one of the trio (say functions), there are often mismatches. In South Africa, expenditure responsibility for health, education and social security has been devolved to provincial governments without the corresponding revenue responsibility (Ahmad et al., 2006). In Brazil, it was the reverse—devolved revenue responsibility without expenditure authority. The second category of reasons for the mixed results has to do with the fact that, even with appropriate design, decentralization in practice has turned up a host of problems. The two most commonly identified ones are (1) that sub-national governments do not receive the funds they are due in order to discharge their responsibilities (World Bank, 2004a) and (2) sub-national governments often lack the capacity to manage their newly given financial responsibilities (some local governments in Ethiopia lacked enough numerate and literate people to manage their finances). In this chapter, we show that the problems with decentralization in practice stem from a somewhat under-emphasized...
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