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Local Service Provision in Selected OECD Countries

Do Decentralized Operations Work Better?

Ehtisham Ahmad, Giorgio Brosio, and Vito Tanzi

May 2008, English

The authors survey the related literature of decentralization experiences in selected OECD (Organization for Economic Cooperation & Development), countries. Examining whether decentralization improves the performance of public education and other local service provision, they review four areas: (1) productive efficiency; (2) regional convergence of service delivery; (3) preference matching; and (4) decentralization and economic growth. They conclude that existing studies fail to provide sufficient evidence to support the assertion that decentralization improves effectiveness of service delivery.

The main reason is the lack of linkage between expenditure and revenue assignments to local jurisdictions. Subnational governments are normally unable to raise enough own-source revenues to finance unfunded mandates. Decentralization also does not seem to promote regional convergence of service delivery, preference matching, and economic growth. As Ahmad, Brosio, and Tanzi argue, these results may be due partly to the limited implementation of decentralization reforms in some OECD countries and partly to data and measurement problems.

This paper was presented at the Lincoln Institute’s annual Land Policy Conference in 2007 and is Chapter 4 of the book Fiscal Decentralization and Land Policies.