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Applying a Simple Measure of Good Governance to the Debate on Fiscal Decentralization

28 Pages Posted: 20 Apr 2016  

Anwar Shah

World Bank

Jeffrey Huther

Board of Governors of the Federal Reserve System

Date Written: November 1999

Abstract

Applying an index for the quality of governance reveals a surprisingly strong positive correlation between fiscal decentralization and quality of governance.

Debates about the appropriate role, policies, and institutions of the state are often hampered by the lack of a definition for good government. To provide a quantifiable measure of good government, Huther and Shah develop an index for the quality of governance for a sample of 80 countries. They apply the index to the debate on the appropriate level of fiscal decentralization.

In measuring the quality of governance, the authors develop indices for the government?s ability to:
- Ensure political transparency and a voice for all citizens (the citizen participation index measures political freedom and political stability).
- Provide effective public services efficiently (the government orientation index measures judicial and bureaucratic efficiency and the absence of corruption).
- Promote the health and well-being of its citizens (the social development index measures human development and equitable distribution of income).
- Create a favorable climate for stable economic growth (the economic management index measures outward orientation, independence of the central bank, and an inverted debt-to-GDP ratio). In relating the index of governance quality to degree of fiscal decentralization for the 80 countries, Huther and Shah are not surprised to find a positive relationship between fiscal decentralization and quality of governance. But the strength of the correlation is surprising.

This paper - a product of Country Evaluation and Regional Relations Division, Operations Evaluation Department - is part of a larger effort in the department to examine the role of the authorizing environment in public sector performance.

Suggested Citation

Shah, Anwar and Huther, Jeffrey, Applying a Simple Measure of Good Governance to the Debate on Fiscal Decentralization (November 1999). World Bank Policy Research Working Paper No. 1894. Available at SSRN: https://ssrn.com/abstract=620584

Anwar Shah (Contact Author)

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

Jeffrey Huther

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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