How decentralization affects efficiency and effectiveness of public expenditures: review of execution of delegated powers

This article reflects some results of the work undertaken by the expert working group on optimization of public expenditures in the area of governance which contributed to the overall efforts on evaluating efficiency of the federal budget expenditures and forming recommendations on the optimization of such expenditures in 2013. This evaluation was conducted jointly by the Russian Academy for National Economy and Public Administration (RANEPA) and National Research University - Higher School of Economics (NRU-HSE) in cooperation with the Ministry of Finance, Ministry of Economic Development, and other federal authorities.The article is focused on the influence of decentralization policies on the efficiency and effectiveness of public spending both in a broad context and in one, based on the practice of delegating some federal powers to the constituent entities (regions) of the Russian Federation.Analysis of the federal budget execution data as well as some public sectors statistics demonstrates that the practice of delegation of the Russian Federations powers to the sub-national level which was accompanied by relevant budgetary transfers (subventions) has led to an excessive growth of the federal budget expenditure on the relevant areas (as compared to the GDP growth for the same period and the growth of the federal budget expenditures on the public administration as a whole). At the same time -at least in the selected cases -the efficiency and effectiveness of public spending, including performance outputs have decreased aft er the delegation of powers took place. Decentralization based on the delegation of powers has also resulted in new functions aimed at controlling the effectiveness of the delegated authorities performance. As a result, total administrative costs have increased.Given these conclusions it is recommended to switch from the practice of delegating authority to the practice of reallocating certain powers among the levels of government with a parallel reallocation of the budget revenue sources. Such a reallocation should be based on a detailed profound review of the efficiency and effectiveness of decentralization in each particularsector, with both the options of further devolution and recentralization being considered.