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| HOME > Courses > Fiscal Decentralization > Concept of Decentralization |
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The Concept of Fiscal Decentralization 1.1 Decentralization is a term widely used, but often means different things to different people. The subject of this seminar is fiscal decentralization, which is related to but different from spatial decentralization and the decentralization of government decision-making. 1.2 Spatial decentralization is a strategy followed by many countries in an effort to encourage economic development outside the major urban areas. The idea is to use subsidies and tax incentives to lower the relative cost of doing business in rural areas and therefore make them more attractive. At the same time, higher taxes in cities would reflect the higher cost of providing services in urban areas, and would make cities less attractive. If it is successful, a spatial decentralization strategy will lead to a more uniform size distribution of cities. There is no requirement that local government finances be strengthened under a spatial distribution strategy. 1.3 The decentralization of government decision-making and implementation involves delegating more power to the decentralized divisions of central local ministries. The goal of this strategy is to improve technical efficiency in governance by eliminating steps in the implementation process and therefore speeding up government action, and to deliver a more suitable package of services by gaining more local level input into the decision about what kind of services should be delivered. Again, there is no requirement that local government finances be strengthened to achieve these goals. 1.4 The main goal of fiscal decentralization is to move governance closer to the people, and this does require strengthening local government finances. The idea is to give local governments some taxing power and expenditure responsibility, and allow them to decide on the level and structure of their expenditure budgets. In this way, people at the lowest level of government will be able to choose the kind of government they want, and will actively participate in governance. The net result should be better local government services, and a more satisfied electorate. Fiscal decentralization requires local governments with some autonomy to make independent fiscal decisions. Why Such Current Interest
in Fiscal Decentralization?
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