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Fiscal Decentralisation and Inclusive Growth

image of Fiscal Decentralisation and Inclusive Growth

Intergovernmental fiscal frameworks, as considered by the OECD Network on Fiscal Relations Across Levels of Government, are a core driver of inclusive growth. Certain institutions and policies can contribute to a more equitable distribution of economic gains across jurisdictions and income groups, such as equalisation systems. In particular, the quality of public sector outcomes depends on how responsibilities and functions such as education or health care are shared across government levels. This implies that intergovernmental fiscal frameworks, which drive the division of roles of the central and sub-national governments, critically influence growth and the inclusiveness of an economy. This book brings together academics and practitioners to address key aspects of intergovernmental fiscal relations and country experience, as they relate to inclusive growth.

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Fiscal decentralisation and the efficiency of public service delivery

This chapter explores the impact of fiscal decentralisation on the efficiency of public service delivery. It uses a stochastic frontier method to estimate time-varying efficiency coefficients and analyses the impact of fiscal decentralisation on those efficiency coefficients. The findings indicate that fiscal decentralisation can improve the efficiency of public service delivery but only under specific conditions. First, the decentralisation process requires adequate political and institutional environments. Second, a sufficient degree of expenditure decentralisation seems necessary to obtain favourable outcomes. Third, decentralisation of expenditure needs to be accompanied by sufficient decentralisation of revenue. Absent these conditions, fiscal decentralisation can worsen the efficiency of public service delivery.

English

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