Empowered local governments have been shown to have a positive impact on the provision of public services and quality of life.^[1] The major benefits of decentralised decisions include (i) a more targeted or tailored supply of public services and infrastructure in response to local demand, which should lead to (ii) a more cost-efficient use of public expenditure and may (iii) increase cost-recovery funding from residents who are more willing to pay for adequate services. Decentralisation can also (iv) promote accountability and reduce corruption due to proximity to the population, which may be more aware of local governments’ actions than those of the central government.

However, if poorly implemented, decentralisation may result in inefficiencies and corruption, and further disillusionment with the government. Therefore, for the abovementioned benefits to materialise, it is important that (a) decisions (and not only operational obligations) are transferred to local authorities; (b) local authorities have sufficient financial and institutional capacity and procedures in place; and (c) the decentralisation promotes engagement and enables people to hold institutions to account for delivering policies in a transparent way.

The transfer of political or decision-making powers (point (a) above) would primarily be a central government choice. The same is true for the decision to transfer parts of the central budget or collected taxes to local authorities in order to improve their fiscal capacity (point b). However, ensuring adequate funding is also a task for the local authorities and so is the building of institutional capacity and procedures. These enable good governance to promote the population’s ability to engage with and hold institutions to account for delivering policies in a transparent way (point c). For example, in terms of fundraising, decentralised governments may be responsible for raising their own revenue and setting their own taxes. That should further improve accountability and responsibility at a local level. There is also evidence that taxes are easier to collect when people can see that they are being used for local purposes.^[2] Beyond setting local business, personal or property taxes, local revenues can also come from increased fees for licences or permits, or from higher tariffs for utility services. These options are discussed further under the policy area for local financing (see Section F1).

A decentralisation process may meet opposition at central and local levels. Central authorities may be reluctant to give away powers and may be concerned about the ability of local authorities to assume new responsibilities and powers. Local authorities also may be reluctant to take on responsibilities and powers that they are not familiar with. In both cases, it may be argued that uncertainty and limited capacity are the key sources of the problem. While limited capacity can be addressed through capacitybuilding programmes, uncertainties for both central and local stakeholders can be mitigated by a gradual transfer of powers, for example, first transferring a prescribed service delivery before greater powers to define and organise service obligations and later giving extended local powers to plan, invest and finance local infrastructure and related services. Uncertainties can also be mitigated through a careful sequencing of capacity-building and the promotion of local stakeholders’ understanding of tasks and processes before powers are decentralised. Close cooperation and the transfer of skills between central and local authorities are also important to mitigate uncertainties and risks during the transfer process.

Lastly, while decentralisation can help strengthen accountability and improve performance and decisions by bringing government closer to people, it can also present risks of corruption and poor performance. Local officials may have greater vested interests based on family, friendship and business ties that can influence decision-making, and local institutions designed to hold local public officials to account are not always adequate.