Decentralisation is considered a panacea for deficient public sector performance by many. However, recent trends of health sector recentralisation in several OECD countries suggest the opposite. Taking on a cross‐country perspective, I examine two hypotheses, namely that decentralisation leads to an increase in public health spending (H1) and to poor health sector outcomes (H2). The evidence I present suggests that decentralising spending tends to lead to larger public health sectors and to poorer health sector outcomes. However, decentralising tax authority has no effect on the size of the health sector and may actually have a positive effect on health sector performance. The broader lesson is that while general fiscal decentralisation research tends to imply that its conclusions are valid for all policy areas in a similar way, sector‐specific insights can reveal a more nuanced view on the consequences of fiscal decentralisation.

The prevailing belief is that local governments, which are closer to their citizens, can deliver public goods much more efficiently than a central government can. Yet skeptics argue that fiscal decentralization can be dangerous. The underlying motivation of this article is to review the basic rationale behind decentralizing public services from the perspective of three main controversies emerging from the literature on decentralization: (in)efficient, (un)equal, and (un)accountable service provision at the local level. For illustrative purposes, this review focuses on two complex and socially important sectors, health and education. The overall conclusion is that the dangers of decentralization are highly relevant to local public service provision, although there is evidence supporting both the decentralization-enthusiastic and the decentralization-skeptical views. When decentralizing public services, reformers should know the specificities of the public service, the local context, and the effects of the design of fiscal relations like the backs of their hands. If things go wrong, recentralization should be an option.

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Fiscal decentralisation theory calls for enhanced local revenue and spending responsibilities to promote the efficiency of public service delivery. However, some have pointed to the danger of local capture cancelling out these effects. I examine the argument that organised crime violence (OCV) intensifies as mafias fight for access to local government resources, which they consider an attractive income source. I regress violence on local spending (LS) in Mexican municipalities over the period 1995–2015. I find a significant relationship between LS and the intensity of violence: higher levels of LS per capita are strongly related to higher homicide rates, conditional on them being positive. However, LS does not determine the probability of OCV taking place in the first place. The results suggest that caution should be exercised when initiating decentralisation reforms in the context of local capture and OCV.