An Empirical Analysis of Decentralization and Poverty in the Philippines

RSN-PCC WORKING PAPER 18-001

43 Pages Posted: 7 Aug 2018

See all articles by Jamil Paolo Francisco

Jamil Paolo Francisco

Asian Institute of Management

Tristan Canare

Asian Institute of Management - Policy Center

Date Written: July 19, 2018

Abstract

Decentralization is a popular component of public sector reform in many developing countries. Local governments are thought to be able to adapt more quickly to local conditions and to respond more appropriately to the needs of their citizens. However, decentralization also has drawbacks. Foremost is the efficiency advantage of the central government in providing public services because of economies of scale and better access to resources. The empirical literature on the effect of decentralization on development shows mixed results depending on the decentralization measure, outcome variables, and countries covered. This study looked at the relationship between decentralization and poverty using data from Philippine cities and municipalities. Results suggest that decentralization, as represented by fiscal autonomy and measured by the share of locally-sourced revenues to total local government revenues, is indeed associated with lower poverty. However, this relationship is not linear – the marginal effect of decentralization on poverty diminishes as decentralization increases. Moreover, decentralization moderates the positive effect of good governance on poverty reduction; and the magnitude of the relationship between poverty and decentralization is stronger in poorer municipalities than in richer ones.

Keywords: Decentralization, Fiscal Autonomy, Poverty, Philippines

JEL Classification: H77, H70, H72

Suggested Citation

Francisco, Jamil Paolo and Canare, Tristan, An Empirical Analysis of Decentralization and Poverty in the Philippines (July 19, 2018). RSN-PCC WORKING PAPER 18-001. Available at SSRN: https://ssrn.com/abstract=3216368 or http://dx.doi.org/10.2139/ssrn.3216368

Jamil Paolo Francisco

Asian Institute of Management ( email )

123 Paseo de Roxas
Makati City, Metro Manila
Philippines

Tristan Canare (Contact Author)

Asian Institute of Management - Policy Center ( email )

Eugenio Lopez Foundation Bldg
Joseph McMicking Campus, 123 Paseo de Roxas
Makati City, Metro Manila
Philippines

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