• Decentralisation & local government
• Decentralisation
• Local governance

Decentralisation & local government

Across the world, local governments are bearing increasing responsibility for the provision of public goods and services and the management of public moneys. To meet this responsibility effectively, they must have fiscal discipline— that is, the ability to spend only as much as is affordable in terms of
their own future financial health and as in accordance with national or local macroeconomic objectives.
This paper addresses four key questions relating to fiscal discipline in local governments. They are:

• what is local fiscal discipline?
• what is the value of local government fiscal discipline?
• what are the consequences of poor local fiscal discipline?
• what institutions at the intergovernmental and local levels are important for local fiscal discipline?

The paper says that local governments must contend with many exogenous factors that affect their fiscal health. They are also highly vulnerable to national shocks and are often heavily dependent on sometimes unpredictable fiscal transfers from other levels of government.

Local governments’ perverse fiscal behaviour can adversely affect national fiscal and monetary conditions. All institutions that govern decisions affecting local fiscal balances must be incentive compatible if local governments are to maintain fiscal discipline and have the fiscal capacity to develop their localities. Whether incentives are effective is often dependent on whether the financial affairs of local governments are subject to scrutiny and whether those who undertake the risks are made to pay the price.

• Full text of document
• Send to a friend