Fiscal Decentralization and the Efficiency of Public Service Delivery
31 Pages Posted: 14 Apr 2015
Date Written: March 2015
This paper explores the impact of fiscal decentralization on the efficiency of public service delivery. It uses a stochastic frontier method to estimate time-varying efficiency coefficients and analyzes the impact of fiscal decentralization on those efficiency coefficients. The findings indicate that fiscal decentralization can improve the efficiency of public service delivery but only under specific conditions. First, the decentralization process requires adequate political and institutional environments. Second, a sufficient degree of expenditure decentralization seems necessary to obtain favorable outcomes. Third, decentralization of expenditure needs to be accompanied by sufficient decentralization of revenue. Absent those conditions, fiscal decentralization can worsen the efficiency of public service delivery.
Keywords: Fiscal decentralization, Public services, Expenditure efficiency, stochastic frontier analysis, public expenditure, revenue, subnational, coefficients, expenditure decentralization, public spending, public investment, local governments, subnational government, subnational governments, fiscal federalism
JEL Classification: C18, C26, H20, H77
Suggested Citation: Suggested Citation