Intergovernmental fiscal transfers are a dominant feature of sub-national finance in most countries. They are used to ensure that revenues roughly match the expenditure needs of various orders (levels) of sub-national governments. They are also used to advance national, regional and local area objectives such as fairness and equity and creating a common economic union. The structure of these transfers create incentives for national, regional and local governments that have a bearing on fiscal management, macroeconomic stability, distributional equity, allocative efficiency and public services delivery. This paper reviews conceptual, empirical and the practice literature to distill lessons of policy interest in designing the fiscal transfers to create the right incentives for prudent fiscal managment and competitive and innovative service delivery. The paper provides practical guidance on the design of performance-oriented
The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished.
This paper examines the conceptual and empirical basis of corruption and governance and concludes that decentralized local governance is conducive to reduced corruption in the long run. This is because localization helps to break the monopoly of power at the national level by bringing decision making closer to people. Localization strengthens government accountability to citizens by involving citizens in monitoring government performance and demanding corrective actions. Localization as a means to making
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