On the Measurement and Impact of Fiscal Decentralization

The typical post-Bretton-Woods era development approach that puts great emphasis on central government efforts to promote development, has changed dramatically and local governments have now emerged as important players in development policy. Now, the concept of requirements for achieving the development objectives is changing and many countries around the world are now implementing fiscal decentralization reforms. Within this context a number of studies attempted to quantify the impact of decentralization by relating a certain measure of decentralization to the economic outcomes of fiscal stability, economic growth, and the size of the public sector. However, decentralization is surprisingly difficult to measure. In nearly all cases those examining the relationship between decentralization and macroeconomic performance have relied on the government finance statistics of the IMF. But despite its many merits, GFS falls short of providing a full picture of fiscal decentralization. Yet for some countries there are data that more accurately capture the fiscal responsibilities of different types of governments.