The Dangers of Fiscal Decentralization and Public Service Delivery: a Review of Arguments

The prevailing belief is that local governments, which are closer to their citizens, can deliver public goods much more efficiently than a central government can. Yet skeptics argue that fiscal decentralization can be dangerous. The underlying motivation of this article is to review the basic rationale behind decentralizing public services from the perspective of three main controversies emerging from the literature on decentralization: (in)efficient, (un)equal, and (un)accountable service provision at the local level. For illustrative purposes, this review focuses on two complex and socially important sectors, health and education. The overall conclusion is that the dangers of decentralization are highly relevant to local public service provision, although there is evidence supporting both the decentralization-enthusiastic and the decentralization-skeptical views. When decentralizing public services, reformers should know the specificities of the public service, the local context, and the effects of the design of fiscal relations like the backs of their hands. If things go wrong, recentralization should be an option.