Handbook of Multilevel Finance
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Handbook of Multilevel Finance

Edited by Ehtisham Ahmad and Giorgio Brosio

This Handbook explores and explains new developments in the “second generation” theory of public finance, in which benevolent rulers and governments have been replaced by personally motivated politicians and the associated institutions. Following a comprehensive introduction by the editors, the renowned contributors present fresh and original perspectives on the key multi-level issues, along with recent developments in theory and practice, as they relate to taxes, budget systems, the management of liabilities and macroeconomic stability. The book also explores special issues concerning the poor and marginalized, structural change and the environment, natural disasters, and the task of overcoming conflicts whilst keeping countries together.
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Chapter 19: Decentralization and poverty reduction

Regina Birner and Joachim von Braun


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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