Author

Litvack, Jennie, Junaid Ahmad and Richard Bird

1998

Number of Pages:

40

Rethinking Decentralization In Developing Countries

Abstract

This paper draws on the literature and growing experience with decentralization in developing countries to

explore how a wide range of variables can affect decentralization efforts and how policies and incentives can

be designed to improve outcomes. The paper highlights the fact that decentralization is neither good nor bad

for efficiency, equity, or macroeconomic stability; but rather that its effects depend on institution-specific

design. It discusses the building blocks of fiscal federalism (expenditure and revenue assignment,

intergovernmental transfers, and subnational borrowing) and then discusses five means through which

decentralization policy and institutions interact. These are the regulatory framework for subnational borrowing,

the financing and delivery of services, information systems and competitive governments, asymmetrical

decentralization, and policy synchronization.

The paper's starting point is the traditional fiscal federalism approach. But the primary measures for local and

central accountability assumed in most discussions of decentralization may not hold or are different in many

developing countries. Drawing on the evidence from the World Bank's operational work, therefore, the paper

suggests the need for a stronger focus on institutions in designing decentralization policies. This broader

agenda suggests an enhanced focus on accountability, governance, and capacity in the context of designing

policies for decentralization. This approach has strong implications for the Bank's project design and policy

dialogue and calls for a reinvigorated research effort focused on developing countries.