Does Decentralization Enhance Service Delivery and Poverty Reduction?
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Does Decentralization Enhance Service Delivery and Poverty Reduction?

Edited by Ehtisham Ahmad and Giorgio Brosio

Does decentralization enhance service delivery and poverty reduction? Drawing on cutting edge research, expert contributors address this fundamental question facing policy-makers in developing as well as advanced countries. This timely book builds upon insights on the recent developments in the intergovernmental literature first outlined in the Handbook of Fiscal Federalism. New empirical evidence from across the globe is presented: policy-oriented chapters evaluate fiscal federalism with an emphasis on the effectiveness of decentralized service delivery, the decentralization process in different parts of the world is appraised, and specially commissioned research focuses on the political economy process and the outcomes of the decentralization process. The role of international agencies, as explicit donors, is examined in several chapters.
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Chapter 13: Subnational Insolvency and Governance: Cross-country Experiences and Lessons

Lili Liu and Michael Waibel


Lili Liu and Michael Waibel* 1 INTRODUCTION The effectiveness of decentralization depends in part on the design and operation of subnational access to credit. Three factors have propelled the growth in subnational capital markets in developing countries since the 1990s and will continue to drive their future growth.1 First, decentralization in many developing countries has given subnational governments significant spending responsibilities, taxation power and the capacity to incur debt. Second, large infrastructure financing needs in developing countries are increasingly seeking capital market financing to match the intertemporal nature of infrastructure. Infrastructure networks benefit future generations as well; thus sound public policy demands that the financing of infrastructure networks be shared by future generations through matching repayment of debt financing with maturity of assets. Third, liquidity and growing mobility of international capital across national borders have lowered the cost of borrowing and thereby strengthened financing opportunities for infrastructure. Although the current financial crisis has strained the subnational credit market, the mobility of capital is likely to resume over the medium term.2 This growth in subnational credit markets is characterized by two distinct features. First, subnational bonds have become an increasingly important source of funding due to diversification of financial instruments and increasing flow of international capital to developing countries. Second, although public institutions continue to dominate subnational lending in a number of countries such as Brazil and India, private capital has emerged to play an important role in subnational finance in countries such as Hungary, Mexico, Poland, Romania and South Africa...

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