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Fiscal decentralisation

Fiscal decentralisation aims to increase responsiveness and accountability of political leaders to their electorates. While decentralising spending responsibilities may bring welfare gains, it may also entail costs in terms of regional equity and macroeconomic management, as well as social and political pressures.

This page, which forms part of the Governance Theme section on 'public financial management and accountability', includes a series of key texts that explore issues surrounding fiscal decentralisation.

Key texts

Smoke, P. 2001, 'Fiscal decentralization in developing countries: a review of current concepts and practices', UNRISD, Democracy and Human Rights Programme Paper 2.
This UNRISD paper examines the origins, conceptual foundations and practice of fiscal decentralisation in developing countries. After revising fiscal decentralisation history and theory, reviewing claims made for and against it and outlining some key elements and problems of fiscal decentralisation in practice, the paper concludes with some observations on how to think about designing more appropriate and effective fiscal decentralisation in developing countries.
Full document available online

Ter-Minassian, T. 1997, 'Decentralizing government', Finance and Development, September 1997.
This IMF article from the journal Finance and Development explores the benefits and challenges of decentralisation and indicates that decentralisation can have positive economic impacts if there is close policy coordination through all levels of government. After analysing the merits and disadvantages of delegating fiscal responsibilities to subnational governments the article concludes that the degree and speed of decentralisation should depend on the level of regional income disparities and on the number of fiscal or macroeconomic imbalances.
Full document available online

Bird, R. 2000, 'Intergovernmental fiscal relations: universal principles, local applications', Andrew Young School of Policy Studies, Working Paper #00-2, April.
Decentralisation is global and dynamic. In fiscal terms this raises certain questions. Who does what? who levies what taxes? how are the imbalances between the two restored? and how should fiscal institutions adjust? This working paper by Georgia State University School of Policy Studies addresses these questions, whilst acknowledging country specific circumstances with political and economic constraints.
Full document available online

von Braun, J. and Grote, U. 2000, 'Does decentralization serve the poor?', paper presented at an IMF conference on fiscal decentralization, November 2000
This paper, presented to the November 2000 IMF Conference on Fiscal Decentralisation in Washington D.C., considers the direct and indirect affects of decentralisation on poverty issues. Types of decentralisation - political, administrative and fiscal - are defined, and their rationale briefly explained, with specific reference to linkages with poverty reduction.
Full document available online

Tanzi, V. 2001, 'Pitfalls on the road to fiscal decentralization', Economic Reform Project Working Paper no. 19, April, Carnegie Endowment for International Peace.
This paper from the Carnegie Endowment for International Peace considers issues around fiscal decentralisation, including potential drawbacks and possible alternatives. Administrative decentralisation should be distinguished from fiscal decentralisation which generally involves some decentralisation of political decisions. The design of decentralisation policies in developing countries is often defective and made too quickly to allow full consideration of alternatives or potential consequences.
Full document available online

Grant, U. 2002, 'Local government decision-making: citizen participation local accountability, examples of good (and bad) practice in Uganda', Building Municipal Accountability Series, International Development Department, University of Birmingham.
In this briefing paper, Ursula Grant of the International Development Department at the University of Birmingham has collated some examples of good and bad practice in decision-making and resource allocation at municipal level in seven Ugandan local councils.
Full document available online

Devas, N. 2002, 'Local government decision-making: citizen participation local accountability, examples of good (and bad) practice in Kenya', Building Municipal Accountability Series, International Development Department, University of Birmingham.
In this briefing paper, Nick Devas at the International Development Department of the University of Birmingham explores the scope for citizens involvement in decision-making and for government accountability to its residents, in order for lasting improvements to be achieved.
Full document available online

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