Is Fiscal Decentralisation Delivering on its Promises? A Review of the Theory and Practice in Developing Countries

Abstract

Fiscal decentralisation has become a widespread phenomenon in developing countries and it has attracted increasing attention in the past few decades. The supporters of decentralisation argue that it can bring about positive outcomes, whether economic or political in nature. For example, since local governments are closer to citizens, they can be expected to be more responsive to their needs. In addition, decentralisation may trigger positive effects in terms of political participation and accountability. Whether these theoretical benefits are achieved in practice is an open question that this paper aims to address. After providing an overview of the main issues and challenges in the design and implementation of fiscal decentralisation, the paper reviews the existing evidence on the impact of fiscal decentralisation on economic and political outcomes at the local level. By doing this it aims to assess whether decentralisation delivered on its promises.