Fiscal Decentralization in Developing Countries: A Review of Current Concepts and Practice

This paper examines the origins, conceptual foundations and practice of fiscal decentralization in developing countries. First, it considers why fiscal centralization has been so prominent historically in developing countries, and why this trend has been reversing. Second, it summarizes conventional fiscal decentralization theory and considers its relevance for developing countries. Third, it reviews some popular claims made for and against fiscal decentralization, and considers the available empirical evidence. Fourth, it outlines some key elements of fiscal decentralization as it is being promoted in selected countries, including some of the problems being faced and successes being realized. The paper concludes with some observations on how to think about designing more appropriate and effective fiscal decentralization in developing countries.