Rural Local Government Finances: An Analysis at the All India Level

Posted: 30 May 2019

See all articles by Basavarajeshwari K

Basavarajeshwari K

Institute for Social and Economic Change (ISEC)

Date Written: December 11, 2016


The issue of fiscal decentralisation has gained importance across the globe. Most of the developing countries are now moving towards fiscal decentralisation. This is on account of several reasons. Particularly, the existence of diverse preferences amongst the citizens makes the local governments the most efficient body to provide services which are local in nature. If the provision of goods were centralised, it would be costly and would lead to provision of a bundle of public goods much different from the tastes and preferences of the citizens of a particular local jurisdiction (Oates, 1972; Tanzi, 1996). In other words, national government would choose one uniform package whereas local governments would choose according to citizen preferences. Economic rationale for fiscal decentralisation is that, it will lead to efficiency and effectiveness in public services.

Decentralisation can lead to success if Constitutional and legal frameworks are clearly defined and enforced. If properly implemented and if necessary requirements are devolved, it will also result in economic and political benefits as local jurisdictions improve the efficiency and accountability of public spending. As to this, Tiebout (1956) specifies thatin a setting of mobile household, individuals can seek out jurisdictions that provide outputs well suited to their tastes, thereby increasing the potential gain from the decentralised provision of public services. Similarly, Tanzi (1996) says that fiscal decentralisation can improve the allocation of public spending by making it more consistent with the wishes of citizens and thus it can provide political glue for countries with regional ethnic diversity.

Keywords: fiscal decentralised, revenue assignments, expenditure assignments

JEL Classification: H71, H76

Suggested Citation

K, Basavarajeshwari, Rural Local Government Finances: An Analysis at the All India Level (December 11, 2016). Available at SSRN:

Basavarajeshwari K (Contact Author)

Institute for Social and Economic Change (ISEC) ( email )

Nagarbhavi PO
Bangalore, 560072

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