Balance, Accountability, and Responsiveness: Lessons About Decentralization

Abstract

Decentralized fiscal structures are more suitable in developing countries than centralized structures are, especially when they are supported by strengthening the rule of law, an independent central bank, an independent judiciary, a charter of rights, appropriate limits on various levels of government, institutions for conflict resolution and for the evaluation of government efforts at all levels, and mechanisms (including a free media) for listening and making government accountable to the citizenry.

Shah 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 as well 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 Shah, are:

-A broad public consensus that decentralization is appropriate. -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 have a direct say in the recruitment and promotion of subnational civil servants. -Proper monitoring and oversight of governance.

Other lessons from experience:

-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. -Indonesia and Pakistan provide good examples of assymmetric decentralization, in which various powers can be assigned to different levels of government, depending on capacity. -The delinking of taxing and spending decisions leads to lack of accountability in the public sector. -Revenue-sharing (tax by tax) distorts incentives for efficient tax collection. -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.

This paper - a product of the Country and Regional Evaluation Division, Operations Evaluation Department - is part of a larger effort in the department to learn lessons of evaluation in improving public sector performance in developing countries. The author may be contacted at [e-mail].