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Balance, accountability, and responsiveness : lessons about decentralization

  • Shah, Anwar

The author examines the reasons developing countries are reexamining the respective roles of the private sector, civil society, and various levels of government--and considering new fiscal arrangements between national and lower levels of government. Decentralization may be particularly well-suited to developing countries, where central governments are not aswell developed as in industrial countries--because information requirements and transaction costs are lower at lower levels of government and the government can be more responsive and accountable to the citizenry. Vital to the success of decentralized decisionmaking, says the author, are: 1) A broad public consensus that decentralization is appropriate. 2) Civil service reform designed to encourage a service orientation, to discourage command-and-control governance and rent-seeking, and to prevent the central government from having a direct say in the recruitment and promotion of subnational civil servants. 3) Proper monitoring and oversight of governance. Other lessons from experience (include): 1) When there is citizen participation and transparency in decisionmaking, limited budgeting, auditing, and accounting systems at the subnational level should not be considered a barrier to decentralization. Those technical capabilities can be borrowed from higher levels of government. 2) Indonesia and Pakistan provide good examples of"asymmetric"decentralization, in which various powers can be assigned to different levels of government, depending on capacity. 3) The delinking of taxing and spending decisions leads to lack of accountability in the public sector. 4) Revenue-sharing (tax-by-tax) distorts incentives for efficient tax collection. 5) Properly structured (simple, transparent, consistent with objectives) fiscal transfers can improve government accountability. Fiscal transfers can also be used to encourage competition for the supply of public goods. In Canada and Chile, for example, Catholic schools compete with public schools for financing.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2021.

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Date of creation: 31 Dec 1998
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Handle: RePEc:wbk:wbrwps:2021
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  1. Mauro, Paolo, 1995. "Corruption and Growth," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 681-712, August.
  2. Anwar Shah, 1996. "A Fiscal Need Approach to Equalization," Canadian Public Policy, University of Toronto Press, vol. 22(2), pages 99-115, June.
  3. Landon, Stuart, 1999. "Education costs and institutional structure," Economics of Education Review, Elsevier, vol. 18(3), pages 327-345, June.
  4. Tsui, Kai-yuen, 1996. "Economic reform and interprovincial inequalities in China," Journal of Development Economics, Elsevier, vol. 50(2), pages 353-368, August.
  5. Deininger, K & Squire, L, 1996. "Measuring Income Inequality : A New Data-Base," Papers 537, Harvard - Institute for International Development.
  6. Boadway, Robin & Roberts, Sandra & Shah, Anwar, 1994. "The reform of fiscal systems in developing and emerging market economies : a federalism perspective," Policy Research Working Paper Series 1259, The World Bank.
  7. Prud'homme, Remy, 1995. "The Dangers of Decentralization," World Bank Research Observer, World Bank Group, vol. 10(2), pages 201-20, August.
  8. Cukierman, Alex & Webb, Steven B & Neyapti, Bilin, 1992. "Measuring the Independence of Central Banks and Its Effect on Policy Outcomes," World Bank Economic Review, World Bank Group, vol. 6(3), pages 353-98, September.
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