By Jennie I. Litvack, Junaid Ahmad, Richard Miller Bird

Political strain drives the vast majority of decentralization efforts in constructing nations. despite its origins, decentralization may have major repercussions for source mobilization and allocation, and eventually macroeconomic balance, provider supply, and fairness. This quantity describes the complexity of the decentralization technique, provides the teachings realized concerning the layout of decentralization, and attracts implications from this research for destiny examine agendas.

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Nonetheless, if the central government is concerned about preserving equity and protecting the poor, it can do so in partdespite decentralized expenditures and taxesthrough the design of intergovernmental transfers. How decentralization affects equity also depends in part on the extent of local accountability and local political participation by the poor. Accountability can be enhanced when local leaders are elected and are concerned about providing services to their constituents. When the poor participate in the political process, they can exert influence on leaders.

On the other hand, allocative efficiency and intergenerational equity often require that long-lived investment projects, especially those that will increase productive capacity, be financed by borrowing rather than relying solely on current public savings or transfers from above. The question, then, is how to distinguish good borrowing from bad borrowing. In the past subnational borrowing was an issue of fiscal federalism because local borrowing was guaranteed by central governments or secured through central intermediaries.

C. W. C. A. All rights reserved Manufactured in the United States of America First printing September 1998 The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors and should not be attributed in any manner to the World Bank, to its affiliated organizations, or to members of its Board of Executive Directors or the countries they represent. The World Bank does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use.

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