Critical Issues of Fiscal Decentralization

Abstract

Decentralization has become an important consideration in the Asian Development Bank’s operations and policy dialogue with developing member countries. This paper provides a survey of key conceptual issues of decentralization. It discusses major routes for decentralization to improve public services, and problems a country could face in implementing decentralization. The paper argues that decentralization can work only when it strengthens local accountability and when national and local governments are linked with clear rules. The paper focuses on fiscal dimensions of accountability between national and local governments, and desirable features of fiscal decentralization. This paper is intended as a reference for staff involved in processing projects and programs and conducting policy dialogue under decentralized government systems, and supporting decentralization in developing member countries.