Donor assessments
Applying a simple measure of good governance to the debate on fiscal decentralization
An index of governance quality
Authors:
J. Huther; A. Shah
Publisher:
World Bank, 1996
Discussions and policy work regarding the role, scope and effectiveness of government have typically taken place in the absence of empirical measures of governance quality. This paper attempts to fill this void by developing a gauge of the quality of government through the construction of an index of governance quality for a sample of eighty countries.
This index is offered as a starting point for an objective assessment of various economic policies to further the quality of governance rather than as a precise and definitive indicator of governance quality.The index could also be narrowed or broadened to reflect differences in beliefs about the role and scope of government.
After describing the construction of the index and the results, the authors provide an application to the debate on the appropriate level of decentralization of fiscal powers. This application provides empirical support for the theoretical underpinnings of the fiscal federalism literature. Governance quality is enhanced, according to this theory, by more closely matching services with citizen preferences, and by moving governments closer to the people they are intended to serve, which ensures greater accountability of the public sector.
The application of this index to the decentralization debate highlights that the polarization of opinion in the absence of hard empirical evidence can be overcome with the use of an appropriate standard of reference such as the one used here. The use of this index allows to reach unambiguous conclusions regarding the net positive effects of fiscal decentralization on public sector performance in a majority of countries.
