Does fiscal decentralization enhance citizens’ access to public services and reduce poverty? Evidence from a conflict setting

This paper investigates whether, and how, the devolution of revenue raising responsibilities to municipalities enhances access to public services and contributes to reducing poverty in Côte d’Ivoire. The analysis uses a local government’ revenue and expenditure dataset from 2001 to 2011 for 115 municipalities in 35 departments. An adjusted multidimensional poverty index and a headcount poverty index are calculated at the local level using the Household Living Standard Survey. The empirical analysis uses a grouped fixed effect approach, combined with a two-stage least squares methodology with panel corrected standard errors clustered by department, to address both time-varying heterogeneity and local revenue endogeneity. The results suggest that increased local revenue positively affects access to public services and reduces poverty. However, there is evidence that fiscal decentralization has a more robust effect on access to public service, than on poverty. This effect seems to work mainly through enhancing access to education more than access to health, water, and sanitation services. Contrary to existing literature, our results indicate that municipalities are more likely to improve access to public services in less ethnically diverse localities and in rural zones. The study provides evidence that the effect of the conflict experienced by the country has been limited statistically.