Realising the promise of partial decentralisation

Abstract

A well-established argument, pioneered by Musgrave (1959) and Oates (1972), states that devolving responsibility to subnational governments leads to better economic and governance outcomes. However, the empirical evidence on this has been mixed. In explaining these mixed outcomes, this chapter identifies two factors missing from this analysis on the impact of decentralisation, namely: that it depends upon prevailing political incentives that govern the behaviour of public sector bureaucrats and service providers, and that the design of decentralisation is inherently a political decision that may deviate from economically efficient solutions. Incorporating these factors, this chapter shows that most decentralisations are partial, specifically with regard to fiscal decentralisation, often with a mismatch between devolved responsibilities and accountability. It concludes that, nevertheless, increased contestation in local elections has the potential to lead to improved service delivery through increasing legitimacy of government and changing social norms.