Balance, accountability, and responsiveness: lessons about decentralization

Abstract

The author 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 aswell 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 the author, are: 1) A broad public consensus that decentralization is appropriate. 2) 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 having a direct say in the recruitment and promotion of subnational civil servants. 3) Proper monitoring and oversight of governance. Other lessons from experience (include): 1) 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. 2) Indonesia and Pakistan provide good examples of"asymmetric"decentralization, in which various powers can be assigned to different levels of government, depending on capacity. 3) The delinking of taxing and spending decisions leads to lack of accountability in the public sector. 4) Revenue-sharing (tax-by-tax) distorts incentives for efficient tax collection. 5) 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.