Handbook of Fiscal Federalism
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Handbook of Fiscal Federalism

Edited by Ehtisham Ahmad and Giorgio Brosio

This major Handbook addresses fiscal relations between different levels of government under the general rubric of ‘fiscal federalism’, providing a review of the latest literature as well as an invaluable guide for practitioners and policy makers seeking informed policy options. The contributors include leading lights in the field, many of whom have themselves made seminal contributions to the literature.
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Chapter 10: Decentralization and Service Delivery

Junaid Ahmad, Shantayanan Devarajan, Stuti Khemani and Shekhar Shah


Junaid Ahmad, Shantayanan Devarajan, Stuti Khemani and Shekhar Shah Introduction This chapter provides a framework that explains both why decentralization can generate substantial improvements in service delivery, and why it often falls short of this promise. Services seem to work when there are strong relationships of accountability between the actors in the service delivery chain – between providers, clients and policy makers. Decentralization can both strengthen and weaken these relationships of accountability. The next section describes the motivation for recent decentralization efforts worldwide and their impact on service delivery. It develops the framework for thinking about why decentralization can lead to substantial service delivery improvements but can also fall short of that potential. The third section examines how different types of accountability mechanisms between central and local government (fiscal transfers, regulation, borrowing rules and so on) affect the incentives facing service providers, and how these translate to service delivery outcomes. The fourth section examines the effect of decentralization on political incentives at all levels – central and local. It asks how a system where politicians at the central level were not facing the right incentives to provide good services will change in the wake of decentralization. For instance, if there were information asymmetries, are these reduced or exacerbated by decentralization? How are social polarization and elite capture affected? And how do electoral rules and political institutions affect the outcome? In the penultimate section, we explore some open questions in the link between decentralization and service delivery, most of which have to do...

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