What is it about?
Does fiscal decentralization improve health and educational outcomes? Does this improvement depend on the quality of governance? How do fiscal decentralization and governance interact?
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Why is it important?
Many public services are provided at the subnational and local government levels. Such decentralization has pros and cons—e.g., decentralization of health expenditure could meet local needs better, while a vaccination campaign would benefit from a centralized system. Motivated by the heightened role of control over corruption in public health service delivery in the decentralized fiscal system during the COVID pandemic, our research gauged the effect of fiscal decentralization on social outcomes, deciphering their relationship with governance and institutional quality.
Perspectives
We find negative effects of fiscal decentralization on health outcomes, which however are more than offset by better governance. Education expenditure decentralization to subnational governments enhances educational outcomes. We conclude that countries can only reap the benefits from decentralization when the quality of their governance arrangements exceeds a certain threshold, and we find that sequencing and staging of decentralization matters. Countries should improve government effectiveness and control of corruption first to maximize benefits of fiscal decentralization.
Dr. Ryota Nakatani
International Monetary Fund
Read the Original
This page is a summary of: Fiscal Decentralization Improves Social Outcomes When Countries Have Good Governance, IMF Working Paper, June 2022, International Monetary Fund,
DOI: 10.5089/9798400211768.001.
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