Fiscal decentralization 101

Fiscal decentralization is about how central governments empower subnational governments to service their populations and to pay for these services. This chapter provides an introductory overview of the main arguments of the book. We discuss why fiscal decentralization is often part of a country’s development policy, as well as the risks involved in giving local and regional governments more fiscal discretion. Here and throughout the book the discussion is based on theoretical arguments; our reading of the by now extensive research findings on many aspects of these issues; and our many years of observing how middle- and lower-income countries in all regions of the world operate. We conclude that while a few developing countries have turned theory into practice with good results, most have been proved unable to reap the potential benefits in practice so that, on balance, there is not much evidence of effective fiscal decentralization on the ground in most countries.