Fiscal decentralization in developing countries: an overview

Abstract

Recent years have seen worldwide interest in fiscal decentralization. Developed countries are reshaping their intergovernmental fiscal structure to be more in tune with the realities of the “post-welfare state” (Bennett, 1990; Wildasin, 1997a). The countries in transition in eastern and central Europe are busily setting up new systems of local and intergovernmental finance (Bird, Ebel, and Wallich, 1995). Many developing countries are also turning to various forms of fiscal decentralization as one possible way of escaping from the traps of ineffective and inefficient governance, macroeconomic instability, and inadequate economic growth in which so many of them have become mired in recent years. Each country does what it does for its own peculiar reasons, but when so many countries in so many different circumstances do somewhat similar things, there is likely to be more at work than meets the local eye. The principal purpose of this book is to take stock of the progress, problems, and potentials of fiscal decentralization in developing countries by bringing together a set of studies from a variety of countries around the world. Decentralization in developing countries sometimes seems to be viewed as either a panacea or a plague – either a cure for all the ills of such countries or an addition to their already heavy burdens. Some argue for decentralization on grounds of improved economic efficiency, some on grounds of cost efficiency, some in terms of improved accountability, and some in terms of increased resource mobilization.