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Applying a simple measure of good governance to the debate on fiscal decentralization
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1998
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Good GovernanceFiscal IssueDevelopment EconomicsSocial SciencesFiscal Decentralization (Corporate Finance)BureaucracyGovernment SpendingPolitical EconomySimple MeasureEnvironmental DecentralizationFiscal DecentralizationAppropriate RoleFiscal PolicyLocal GovernancePublic PolicyEconomicsGovernance FrameworkGood GovernmentEquitable DevelopmentEconomic PolicyBusinessFiscal Decentralization (Public Finance)Government Orientation IndexPolitical Science
Debates about the role, policies, and institutions of the state are hampered by the lack of a definition for good government. The authors develop a quantifiable index of good governance and apply it to the debate on the appropriate level of fiscal decentralization. The index aggregates four sub‑indices—citizen participation, government orientation, social development, and economic management—to capture political transparency, public service efficiency, citizen well‑being, and a favorable economic climate. Across 80 countries, the study finds a positive correlation between fiscal decentralization and governance quality, with a surprisingly strong association.
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, the authors 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: a) Ensure political transparency and a voice for all citizens (the citizen participation index measures political freedom and political stability). b) Provide effective public services efficiently (the government orientation index measures judicial and bureaucratic efficiency and the absence of corruption). c) Promote the health and well-being of its citizens (the social development index measures human development and equitable distribution of income). d) 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, the authors are not surprised to find a positive relationship between fiscal decentralization and quality of governance. But the strength of the correlation is surprising.