Ensuring Inter-Regional Equity and Poverty Reduction

The decentralization of revenue sources and expenditure responsibilities to subnational levels of government can increase the efficacy of speding, and increase participation in decision making by local constituents. It is also true, however, that decentralization can also result in inequities in service delivery among citizens of the same country depending on where they live. While decentralization need not cause these inequities, devolution of revenue sources combined with disparities in endowments of regions is likely to lead to disparties in fiscal resources at the subnational level. If left by themeselves, these disparities could lead either to lower levels of services in fiscally poor regions, and/or lead to higher tax rates for similar levels of government services in those regions. In turn, disparities in service delivery could thwart poverty alleviation efforts, as public services that are usually provided at the subnational level such as primary health and education are critical in empowering the poor. Disparities in the level and quality of these services could therefore eventually perpetuate inequalities in income levels, or at least delay conversion of incomes across regions. Moreover, large fiscal disparities could induce migration to regions that have higher revenues and better services, even though the migrant could have been more productively employed elsewhere. Finally, large disparities in public service undermine the sense of unity in a country. Such diversity coupled with increasing disparities across regions may constitute the basis for regional insurrections such as, for example, the Muslim regions of Mindanao in the Philippines and West Papua in Indonesia (Hill, 2000).