Fiscal Decentralisation and Local Economic Development in Ghana

List of Abbreviations

  • AG = Auditor General
  • BMA = Bayesian Model Averaging
  • BNI = Bureau of National Investigations
  • CAG = Controller and Accountant-General
  • CAGD = Controller and Accountant-General’s Department
  • CBI = Central Bank Independence
  • CIDA = Canadian International Development Agency
  • CPI = Corruption Perceptions Index
  • DACF = District Assemblies Common Fund
  • DAs = District Assemblies
  • DCGC = Deposit and Credit Guarantee Corporation
  • DCE = District Chief Executive
  • DDC = District Development Facility
  • DMMCE = District, Municipal and Metropolitan Chief Executives
  • DMTDPs = District Medium Term Development Plans
  • DNDMO = District National Disaster Management Officer
  • DSC = District Security Council
  • DACF = District Assemblies Common Fund
  • DPCUs = District Planning Coordinating Units
  • GFC = Global Financial Crisis
  • GTZ = German Technical Cooperation
  • HRM = Human Resource Management
  • IEA = Institute of Economic Affairs
  • IPRSP = Interim Ghana Poverty Reduction Strategy
  • HAVA = Help America Vote Act of 2002
  • LDCs = Less Developed Countries
  • MDG = Millennium Development Goals
  • MFEP = Ministry of Finance and Economic Planning
  • MNC = Multinational Corporations
  • MPs = Members of Parliament
  • MMDAs = Metropolitan Municipal District Assembly
  • MOF = Ministry of Finance
  • MLG = Ministry of Local Government
  • MoFEP = Ministry of Finance and Economic Planning
  • NCG = Nordic Consulting Group
  • NDPC = National Development Planning Commission
  • NDP = National Democratic Party
  • NHIS = National Health Insurance Scheme
  • NVRA = National Voter Registration Act of 1993
  • OECD = Organisation for Economic Co-operation and Development
  • OMA = Obuasi Municipal Assembly
  • PPP = Public Private Partnership
  • PNDC = Provisional National Defence Council
  • RAut2 = Revenue autonomy at second degree
  • RSC = Regional Security Council
  • SCG = Sub-Central Government
  • RCCs = Regional Co-ordinating Council
  • RPCU = Regional Planning Coordinating Units
  • TPOs = Town Planning Officers
  • USAID = United States Agency for International Development
  • WB = World Bank

Abstract

Over the past couple of years, due to the potential advantages that can be derived by implementing fiscal decentralisation, it has been a significant topic for discussion and great concern, especially in developing countries. At the same time, it has also become a key problem nowadays. Fiscal decentralisation is expected to provide numerous advantages and assistance to governments in their endeavours to provide good governance.

Despite the fact that fiscal decentralisation makes government officials responsible and accountable for meeting people’s requirements, there is no considerable positive effect (as opposed to the theoretical suggestions) on the economic growth. The policy of fiscal decentralisation is introduced for an offset problem that has caused dissatisfaction with the current centralised system of governance. This paper indulges in a discussion where both the positive and negative aspects of fiscal decentralisation shall be considered. The impact of fiscal decentralisation on the economic growth of a country is governed by various factors that are influenced by the involved communities and economies.

Fiscal decentralisation is considered to be initiated when local governments are given ample power to manage projects (goods and services) involving funds. On their part, the local governments have to sincerely follow the guidelines and requirements of fiscal decentralisation. Such allocation of financial powers can either be in the form of local units that act as per the union government’s guidelines or as devolution where local governments are given considerable powers to determine the financing method of projects to be undertaken. When fiscal decentralisation is considered to be sound, it means that there is stability in the economy.

On the other hand, when fiscal decentralisation is considered to be efficient, it means that the economy of a nation has adopted better ways to deliver public goods. Fiscal decentralisation can be effective only if there is precision, clearness, consistency, and distinct guidelines in dealings. As far as revenue is concerned, the local governments should be allowed to enforce a minimum of one tax structure and to manage the services in their localities.

Self-sufficiency has to be clearly explained should be well defined and explicit and also limited to the prescribed guidelines pertaining to the borrowings by local authorities. Appropriation of funds by sub-national governments needs some equilibrium of market principles, regulations, control, and management. Supporting institutions, democratic representation, sound budget process (efficiency and democratic), collection capacity of revenues and accordance between levels of governance are crucial for the economies, especially for the transition countries, concluding to macroeconomic efficiency and growth, vice versa will have a lack on this variable.

It is quite possible that fiscal decentralisation might be a hindrance to the working of governments whose policy is to maximise revenue. In such circumstances, the competition between various levels might result in limiting the budget volume, thereby restricting the magnitude of the private sector. Fiscal decentralisation may have high impact in economy especially in macroeconomic performance and management.

Global understanding has depicted that proficient multi-tier government needs cooperation among various levels of governance, clarity, and broad exchanges of information. For sure, in almost all countries there is lack of cooperation between line ministries and local units associated with unrealistic regulations, proliferation unfunded mandates, ineffective supervision and weak supports.

Introduction

Background of the Problem

This thesis puts forth the effects of fiscal decentralisation and its usefulness in establishing a link between the actual economic situation of Ghana and the legislations. The usual process of fiscal decentralisation and the extent to which the benefits are being passed on to the public is also discussed. The World Bank (WB) and the International Monetary Fund (IMF) have laid certain guidelines to be followed by nations for fiscal decentralisation. In line with such guidelines, the parliament also passed some reforms to be carried out in order to enable the country to sustain the economic growth and encourage people’s participation.

It has been a long time that Ghana has been the epitome of fiscal decentralisation and it is now time to evaluate the level to which the country has been successful in unbiased and fair distribution of the benefits. It is also imperative to assess the level to which the government of Ghana has been able to undertake initiatives for the overall development and how far has corruption given rise to the bureaucratic red tape. The question is whether the fiscal decentralisation policy has been able to deliver and contribute in the overall development of Ghana and its people. This thesis has aimed to conduct a 360-degree investigation whether the government of Ghana has adopted a fair and dependable economic approach towards the fiscal decentralisation.

Since the past two decades Ghana has been experiencing fiscal decentralisation that has resulted in diverse knowledge and understanding of the socio-economic contributions of the country’s decentralised local governments. At this moment, it is no more than a theoretical paradigm of economic development, but the country has in fact huge practical evidence that would provide real direction for exacted policy reformation in connection to further fiscal decentralisation.

Now is the right time for the government of Ghana to assess and measure the aggregate outcomes of fiscal decentralisation that have been implemented for the last twenty years. The determination of both negative and positive influences of fiscal decentralisation would enable the government to generate new policy direction that could gain economic development confirming enhanced capabilities and accountability at local levels.

The intention of ensuring economic development through fiscal decentralisation is a great challenge for the present government. From the very beginning, fiscal decentralisation has aligned with different irregularities and corruption, in some extent. Rather than economic development, it has decentralised the corruption at a larger area of the economy; from central to local level. Even though the development partners would like to view the corruption and regulates as ‘grease’ on the wheel of fiscal decentralisation, good governance is a primary condition for a nation’s economic progress; corruption and good governance may not run simultaneously.

Adei (2010) pointed out that among the administrative and revenue staff of the local governments of Ghana, there is an absence of three essential and delicate values; their educational background, organisational values gained from the local governments, and the societal values that they live in.

There are a lot of differences in the theory and practices followed by the political leaders in Ghana. The traditional societal values are disregarded and moreover, due to their bureaucratic attitude, bureaucrats refrain from mingling with the common people. The bureaucrats as well as the other representatives of the people don’t behave ethically and boast of the facilities given to them by the government such as, lavish homes and vehicles.

People believe that the bureaucrats enjoy such luxuries at the cost of their hard-earned money that goes into public revenue. An excellent leader is one who adheres and follows the societal values but the prevailing circumstances in Ghana have developed a general perception among the locals that the leaders lack ethical values that are needed by the people. The bureaucrats of Ghana are engrossed with the colonial mentality and even though they are public servants, they are simply concerned about gaining their own interests.

This particular attitude of the officials of the local governments in Ghana has created a void between the public and the local government bodies. Fiscal decentralisation is a program initiated through the local government bodies; since the people don’t have faith in the local government, this program is expected to face severe defeat. As such, it becomes inevitable to encourage people’s participation in the public welfare and service delivery programs. If the people are ignored, then instead of bringing in benefits, the fiscal decentralisation program might create havocs and hamper the prevailing economic growth of the country as well.

According to a GNA (2009) report, the local government system of Ghana is experiencing a severe threat due to the power sharing conflict among the DMMCEs (District, Municipal, and Metropolitan Chief Executives) and the MPs (Members of Parliament). This has resulted in bitterness, unfriendly working condition, and lack of patriotism among the officials; the scenario hints at the unavoidable and pathetic outcome of the fiscal decentralisation program.

The partisan politics of the country has actually paralyzed the decentralisation process at the local level and it has now become very difficult to execute any accord. But the political situation in Ghana was not the same earlier; after its independence in 1957, the country witnessed meaningful decentralisation and responsible actions of the local government bodies. The current situation in the country is greatly influenced by the so-called development agencies. The party politics in the country has also been aligned with the policies of such agencies.

The Local Government Act of 1961 has clearly distinguished the central government from the local governments. Most of the important powers are vested with the central government but the amendment of 1993 in the Local Government Act integrated provision for decentralising at least twenty two central departments and ministries that generated 103 District Assemblies (DAs) including three Metropolitan and four Municipal Assemblies in the country.

The amended act clearly states that there has to be a minimum of thirty percent reservation for technocrats and experts in the District Assemblies; unfortunately, the current positions in the District Assemblies are occupied by political activists.

The Act also allows certain financial freedom for the district Assemblies but here again the interference of the central government has seized that autonomy. The reason cited for this seizure is that the District Assemblies are not competent enough to handle funds and as such the central government handles the financial management.

According to Jönsson (2007), the local governments of Ghana were incapable of alleviating past tensions with the chieftains that resulted in the Dagbon crisis. It is notable that at least 30 people were killed during this crisis and the blame rests on the District Security Council (DISEC) of Yendi and the Northern Regional Security Council (REGSEC). In an appalling revelation by the Wuaku Commission (2002), the treacherous role of the District Chief Executive (DCE) was anticipated and further investigation was recommended. The District Chief Executive was believed to have favoured/disfavoured certain conflicting groups of tribal people within his jurisdiction.

The Northern Region of Ghana witnessed substantial inter-ethnic conflicts related to the local decentralisation structure of administration and tribal norms. The incidence of widespread violence and loss of hundreds of lives during these conflicts was interpreted as a civil war by the international media. The fiscal decentralisation program has started to be executed socially but if the political aspect is considered, it has certain barriers at the local and national levels. Rather than the conflict among the tribal groups, the crucial part is to sustain the chieftains with the help of local government bodies that come under the fiscal decentralisation program.

During the post-independence period, the influence of political and traditional leadership in Ghana developed through building direct competition and conflict with each other. Later on, the ease of access to the traditional state structure gave rise to conflicts; due to the race to become chiefs. Such conventional leadership of Ghana has allied with a collective expansion of security discourses in this region. Consequently, the decentralised regional units of the state have to face the challenges of upholding the common view of Ghana’s people in order to establish a non-violent and peaceful country and to avoid any ethical conflicts that might endanger the country’s security (Higazi, 2004).

According to Jackson and Marquette (2003), even the combined efforts of the traditional and decentralised local government systems have not been able to sustain the conflicts of the chieftains with the local government authorities; though it is very crucial to integrate the chieftains with the local government. Probably, the main point of disagreement is the land allocation system.

The local governmental bodies are encouraged to develop strategic plan to involve the chiefs in the new decentralised system and in this way, it would be possible to use the chiefs to motivate and gain greater support of the local people for development plans. Integrating the chiefs in the process of local governments would facilitate the understanding and use of traditions and norms of the communal prerequisite of services; chiefs could also act to interact between the communities and the local governments to accelerate education and control juvenile delinquency at the grassroots level, where the district assemblies have no remarkable success story.

Akramov and Asante (2009) conducted a survey on the decentralisation of Ghana and its level of local public services delivery and urged that the argument of gaining economic efficiency through decentralisation is not always true. Even though it is believed that empowering the local governments to deliver public services would increase the efficiency at the local level and enhance transparency and accountability of the government, the real scenario is very different.

The philosophy behind such logic is that the local authorities, due to their proximity to the grass root people, would be better informed and understood about the needs of the people rather than the central government. As such, the proximity would provide better scope to deliver services with local preference. At the same time, local people will get enhanced scope to know about the governmental programme and will be able to involve themselves with the ongoing agendas. However, the real life circumstances of Ghana have witnessed inadequate local capacity, conflicting leadership, inefficient local level revenue collection, and imbalance of development initiatives in different jurisdictions; these signs are definitely not pertinent to an efficient economy.

Graphic (2011) claimed that in 2007, the Bureau of National Investigations (BNI) arrested a few employees of the Comptroller and Auditor General Department for suspected fraud of ¢722 million from the state treasury. The incident put a question mark on the trustworthiness of the state’s top bureaucrats. Once the incident came to the limelight, the Comptroller and Auditor General even had a public debate with the Auditor General on the issue.

During the audit of the CAGD, it w as revealed that fictitious invoicing was done between anonymous companies and huge amounts were charged for rendering services to the ministry. It is believed that such treachery was committed in connivance with high officials of the ministry and the CAGD (for which the Comptroller and Auditor General was personally liable). There were several counter allegations between the Comptroller Auditor General and the Auditor General but nothing concrete has been established.

Researchers identified a series of financial and accounting frauds in the public service of Ghana and termed it as a fault of the internal control system, malfunctioning administrative measures, inferior record-keeping procedure, along with the involved unethical practice by the civil servants of the republic of Ghana (ITMT: International Records Management Trust: Ghana Case Study, 2008). The study also evidenced the following financial and accounting frauds:

  • In 1998, the AG report identified 83% of the personal emoluments under the Ministry of Mines and Energy as fictitious.
  • In 2002, an amount of ¢1.18 billion was cheated from the state treasury as various civil and military payroll.
  • In 2003, an amount of ¢3.25 billion was cheated from the state treasury as various civil and military payroll.

To accomplish such big frauds, a complete chain from the lower level to the highest level is required. So, it is obvious that in these frauds, the people involved were bureaucrats and low level civil servants like accountants and payroll officers. The involvement of the management of the concerned departments and the bankers was also hinted. These types of financial frauds in the economy ought to have a severe negative impact on the economic growth of the country; it will hamper the augmentation of living standards of the people by increasing inflation, raising commodity prices and uplifting taxes. Thus, people would never experience any fruitful improvement from the fiscal decentralisation if the system is not rectified.

In December 2011, the USAID sanctioned a grant of US$ 1,050,000 for the non-governmental organisations of Ghana with the aim of propagating fiscal decentralisation, which they addressed as assistance for strengthening democracy and executing decentralisation by involving the local civil society (LOGODEP: USAID Gives Grants to Civil Society Organisations, 2011). Seventy nine grant applications were received and only seventeen NGOs were selected, considering the people’s participation, integrity, and comprehensive development planning for decentralisation. The grant recipients and the policy makers of Ghana need to take into account the impact of such foreign aid or assistance and the extent to which such funds could be used for true economic growth or social progress in the country.

According to a study on the foreign aid received by Ghana, conducted by Osei (2004), the foreign donors identified certain sources in the country where the funds were being donated. The government or the agencies had no liberty as far as spending the donated amount was concerned. In order to avail the donated amount, the government and/or the agencies had to purchase the required goods from the agencies nominated by the donors. As the case was, the price of goods of these agencies was much higher than even the international market price; the import price almost doubled. The end-receivers of this burden of increased prices were the local people.

While on one side the donors were benefitting from the increased price that they were getting for their products, on the other hand the government was being over-burdened by the interest. Such a situation could lead the country to collapse under foreign liabilities. It is understood that Ghana is in grave need of foreign aids and grants but the cost at which such aids and grants are obtained will surely hamper the actual economic growth of the country; Ghana needs to have more bargaining power.

The aforementioned scenario suggests the governing rules of the central and the local governments and the prevailing practice of state services (and their implications). The effectiveness of the fiscal decentralisation system has also been evaluated. The fiscal decentralisation program has been passing through a rough patch and has witnessed various changes that have complicated the situation and the link between the central and local government bodies.

This is only the tip of an iceberg; the policymakers of the country fear a greater system failure. Considering this background problem, the researcher has decided to conduct a study that will encompass the rules that govern the fiscal decentralisation in Ghana. Such a research is expected to determine a way-out for the policymakers and regulators of Ghana to come out of the existing dilemma related to public service delivery and develop a suitable solution for the betterment of the country.

Statement of the Problem

Several researches have already been conducted with the nature and shape of fiscal decentralisation and its standard practice in Ghana, but there is no research agenda that has yet been raised with the historical complexities of fiscal decentralisation in bringing local economic development in Ghana along with the determinants of the economic progress for which the country is striving. The legislation of Ghana has already been amended several times to facilitate fiscal decentralisation with the aim of delivering superior public service to the grass root people that would ultimately enhance social progress and encourage people to contribute to the GDP growth by enhancing their individual economic performance.

The government and the civil society of Ghana are eager to upraise the productive capabilities of the grass root people and make them capable to represent their own business and improve their financial status. This can be possible if international standard of public services is adopted by the local governments. The local policy legends are much aware of the ways to prevent all sorts of unethical conduct on the part of the local governance. If conceded, it would ensure corruption free revenue collection structure, transparent accounting and recording system, fair public service delivery, and higher standards of ethical behaviour of the civil servants all over the country.

Medium term region improvement development procedure demonstrates that after the decentralized growth programs there appears to be stipulation and desire for an upgraded improvement from local groups in the area. It is a monetary reality that assets are restricted and people’s requirements are boundless. The area supply capabilities are constrained and the requests and desires from the group are high. To fathom or minimize such a space one can think how the assets availability might be expanded. In such a circumstance, discovering conceivable and effective methods for preparing local assets is similarly essential as that of searching for outer sources, for example, union government subsidies.

In such circumstances, it is necessary to have such programmes that might decrease the dependency of local governments on outer support for the financial needs of the region. An appropriate fiscal decentralisation programme can suffice such needs of the region and people.

Taking after the decentralization procedure, District Assemblies in Ghana now have the obligation to arrange and execute their ventures or projects. The local governments, to a great extent, rely on inner hotspots for the regular management of the administration. These incorporate revenue from various sources that gather as an after effect of the local government’s own exertion at income preparation and generation. The union government also transfers some funds as grants and aids. However, it has been noted that financing district development schemes in Ghana has become so challenging that it is difficult for the decentralised development programmes to sustain (Kessey & Kroes, 1992).

Objectives of the Study

The objective of the research is to support both central and local governments with better understanding of fiscal decentralisation. It also aims at establishing the contribution of fiscal decentralisation towards the local economic development by supporting free and fair public service delivery to the grassroots level with ethical standards and reflects the local governance reality to encourage small and medium local investors to formulate investment decisions.

The main objective of the research is to assess the contribution of the fiscal decentralisation on the local economic development in Ghana for the last twenty years.

The Specific Objectives are:

  1. To examine the extent to which the theoretical framework of fiscal decentralisation has been successful in gaining its core values through its effectiveness and implication in different countries.
  2. To evaluate the impact of fiscal decentralisation on the public finance of a certain country.
  3. To investigate if the theoretical framework of fiscal decentralisation has any correlation with the theories of economic development.
  4. To review the impact of fiscal decentralisation on local legislation, taxation, civil servants, poverty eradication, and market harmonisation in less developed countries.
  5. To interrogate the reason behind donor agencies’ encouraging and providing incentives for fiscal decentralisation and also to ascertain whether the interests of the host country and the donor country are the same.
  6. To juxtapose the advantages and disadvantages of fiscal decentralisation pertaining to the local economic development in Ghana.

Research Questions

The research questions are listed below:

  1. To what extent is the theoretical framework of fiscal decentralisation successful in gaining its core values through its effectiveness and implication in different countries?
  2. What is the impact of fiscal decentralisation on the public finance of a certain country?
  3. Does the theoretical framework of fiscal decentralisation have any correlation with the theories of economic development?
  4. What is the impact of fiscal decentralisation on local legislation, taxation, civil servants, poverty eradication, and market harmonisation in less developed countries?
  5. Why are the donor agencies encouraging and providing incentives for fiscal decentralisation and are the interests of the host country and donor country the same?
  6. What are the advantages and disadvantages of fiscal decentralisation pertaining to the local economic development in Ghana?

Scope of the Study

Hoffman and Metzroth (2010) claimed that the first decentralisation initiative in Ghana was taken by the British colonial rule through Municipal Council Ordinance -1859 with the aim to destroy traditional local authorities that prevailed earlier. Unfortunately, their initiatives to deliver public services such as education and public health through elected local bodies were in vain and as such, they preferred to appoint local civil and military elites in the local bodies; such elites were loyal to the British monarchy. The fiscal and judiciary powers of the local governments were withdrawn by the British monarchy.

In the modern era, the fiscal decentralisation drive was conducted in Ghana in 1989 under an undemocratic environment while the country was still under military rule and was eager to establish civil administration under the control of autocratic martial law practicing political parties (Crook, 2003; Crawford, 2004). While Ghana has come out from the reign of Rawlings’ nineteen years of military anarchy in 2000 and walked through the multiparty democracy, the democratic governments also continued the fiscal decentralisation, though it was a political agenda of the Rawlings government to keep the political institutions apart from the local governments (Abdulai, 2009).

During the long journey of Ghana for fiscal decentralisation both in the undemocratic and democratic environment, the government has gained vast experience and has issued numerous reports in this regard. All these previous governmental reports, connecting to the fiscal decentralisation, would be a powerful resource for the present study and provide enhanced scope for the present author to conduct a landmark study.

The donor agencies, academia of Ghana, development workers, and partners have successfully conducted huge research focussing on the contemporary dilemmas of fiscal decentralisation from different viewpoints, which are to some extent analogues to each other. But only a few of them have fundamental contribution to the effectiveness and implication of fiscal decentralisation. Although the present research has different perspectives of observing the local economic development deliberated from the fiscal decentralisation, the previous studies would provide enough scope to design the present research with standard norms and realistic data of previous practice.

The legislation of Ghana has witnessed different shifts pertaining to the fiscal decentralisation evidencing from Local Government Act-1961, Local Government Act- 1993 Act, National Development Planning Act-1994, Civil Service Law-1993, District Assemblies’ Common Fund Act- 1993, and Local Government Service Act- 2003 that have chronologically emerged and developed through their practical experiences (Crawford, 2004).

Every amendment of the local governmental legislation of Ghana has changed the norms of practice due to the eagerness of the government to offer good governance, uninterrupted public service delivery, and to ensure accelerated participation of people. Thus, the legislation for fiscal decentralisation is another valued resource for the present study that would provide further scope to analyse necessity of any reformation.

Moreover, the author of this thesis has unlimited scopes to develop logical foundation for local economic development within the topic area, for instance –

  • The author has the opportunity to observe the extent to which existing public service delivery provisions of Ghana complied with the practice of other African countries and also with the standards of global practice of local governance system.
  • In addition, this paper has the chance to observe internal implications and effectiveness of fiscal decentralisation system in Ghana, considering the amendments of Local Government Service Act- 2003 (that included guidelines for best practice), Human Development Index, and Financial Report of Ghana.
  • This author has also the opportunity to scrutinise the financial reporting standards and disclosures of Ghana in consideration with Chartered Accountants Act – 1963 and Financial Administration Act – 2003 of Ghana in order to identify the extents of manipulation and corruption in the economy.
  • This paper has also a scope to concentrate on the principles of national leaders’ relationship management with the local governments, identify standards on local and central leaders’ integrity, effectiveness of existing public service delivery, fiscal autonomy and performance in global best practice indicators, taxation policy, and key standards of civil servants’ ethics in Ghana.
  • On the other hand, this study has also a scope to put forth the theoretical framework of fiscal decentralisation, the effectiveness of national implementation, the impact of the regulations on the local system of public service delivery, and the influence to resolve conflicts among the central and local leaders of Ghana.
  • The entire process of the thesis would assist to provide a fruitful and realistic suggestion for further improvement of the fiscal decentralisation process along with applicable recommendations that would improve the existing local services delivery system with the aim of bringing local economic development in Ghana.
  • Finally, the author has the prospect to collect the primary data from the local district assembly leaders and beneficiaries with the aim to analyse the concurrent implications and effectiveness of fiscal decentralisation in Ghana with economic development indicators in both macro and micro level.

Significance of the Research

During the latter half of the 20th century, the developing countries adopted various means to improve their financial systems. One of the measures was to increase the significance of market that included the private as well as public sector. During the past couple of years, the concentration has been more on developing the public sector. One of the major factors of this endeavour is to initiate policies that would introduce the decentralisation process.

Fiscal decentralisation and local government empowerment are the main concerns of governments of developing countries. Unfortunately, such attempts (wide-ranging and costly ones) have not yielded much as far as attaining the prescribed objectives is concerned. Such a bumpy performance of the developing countries with regard to fiscal decentralisation has given rise to the necessity of conducting research on the ways to alleviate the problems.

Earlier researches have tried to find out ways to be adopted by countries to have an efficient fiscal decentralisation system and to ensure a competent local system that may deliver better public service than the central government. Encouraging civil servants to be answerable to the people has also been the point of contention. It has also been researched how the local government could increase economic revenue by increasing the national policymaker’s confidence.

Previous researches on fiscal decentralisation have concentrated on the conflicting dilemmas of central and local governments with regard to state power sharing and to establish the appropriateness of the local governance system. Some researchers have drawn attention towards stabilising the state services through balancing power between central and local governments of Ghana in a manner that there is a way-out of the system that has been prescribed by the donor agencies without any local consideration. Most of the remarkable contemporary researchers have concentrated on the local system standards, relationship between the national and sub-national governments, and regulatory reformations for fiscal decentralisation.

But unfortunately, no overarching research agenda has been proposed as yet on whether the fiscal decentralisation is a conscious drive of the economic development or is it a political agenda rather than economic emancipation of Ghana. There is no remarkable research in the area that has focused on the question pertaining to the contribution of fiscal decentralisation to the local economic development in Ghana.

The rationale of this research is to analyse the role, implication, and effectiveness of fiscal decentralisation in Ghana (experienced by observing the real scenario of Ghana’s local governmental systems) and to evaluate the extent to which the existing practice of fiscal decentralisation is effectual in gaining economic development of the nation by ensuring effective local service delivery. By this time Ghana has come a long way towards fiscal decentralisation and has gathered lots of real life experiences in this regard without doubting the recommendations of the donors. Thus it is the proper time to investigate whether fiscal decentralisation is an effective tool to bring local economic development in Ghana or not.

In addition, this research has aimed to escalate the awareness of legislators and regulators to take control over the local economic development in Ghana with local consideration rather than just following the recommendations of the donor agencies. The country has already experienced the impact of the global financial crisis that has socked its economic growth significantly, including the disturbed public services delivery to the local communities of Ghana.

The policy makers are anxious to bring back the national citizens’ confidence on the overall system. Moreover, this thesis has aimed to assist the academia, regulators, political leaders, and national policymakers with better understanding about the implications and effectiveness of fiscal decentralisation and its economic consequences. This would instigate them to rethink about the whole process and to take appropriate measure for local economic development through decentralisation.

This thesis also identifies the economic indicators that would contribute towards making the Ghanaian bureaucracies to understand the conflicting norms between the national interest and those of the donor agencies. This would enable them to gain better bargaining power to ensure local economic development through the fiscal decentralisation and never to consider economic development as synonymous to the public service commercialisation.

Meanwhile, this study would also urge to unite the political forces with greater national interest rather than having conflicts over any sectarian interests. If the fiscal decentralisation system is free from any external influence, if there is an agenda of integrating the people without bothering about the political affiliation, and if economic emancipation is considered as top priority, an excellent progress can be expected.

This paper would also make broader sense for the policy legends that the economic development is not a consequential product of the fiscal decentralisation, but a challenge that necessitates political commitment, transparency, and ethical performance, far away from fraudulent practice. By this investigation and its outcomes, the public services providers and investors will get a potential investment environment within the local system of Ghana and the local governments will enjoy better level of investors’ confidence. This ought to endow a competitive advantage over the country in bringing economic development at the local level.

Limitations of the Study

Besides the described scopes for the entire study, the researcher has suffered from a number of dilemmas in investigating the economic impact of the fiscal decentralisation in Ghana, for instance:

The topic of this thesis has a mixed area of investigation that deliberated with the political economy along with legal aspects, like ‘decentralisation’ is a political agenda for good governance but when it integrates with ‘fiscal’, it turns into economic aspect of taxation. To take any reformative measures for taxation structure, it is essential to concentrate on legislative reformation, governmental rules and regulation, and central bank’s guidance along with people’s mandate.

Moreover, the local economic development is directly linked with the appropriate use of local resources for productive initiatives by taking into account the local market demand and all other economic activities, rather than any political agenda like decentralisation. For such local economic development, the primary requirement is capital inflow; the less developed countries like Ghana have serious deficiency of such capital inflow.

There is logic that fiscal decentralisation would enhance resource mobilisation through effective taxation structure (locally) and the development partners would provide grants for reformation, which could be a resource of capital mobilisation. In this context, a question arises that pertains to the utilisation of resources for local economic development by nations such as Ghana and whether they have to utilise such resources for local economic development or do they have to use those resources only for the non-economic development initiatives prescribed by the donor agencies. If the answer to this question is yes, then the local economic development cannot be possible.

Thus, this research has engendered with a complicated area of political economy which has no direct solution. The argument that fiscal decentralisation has much contribution for local economic development could be more authentic if the spirit of decentralisation would be aimed at economic emancipation rather than political agenda.

Meanwhile, there is no previous study, which aimed to observe the decentralisation drive from the local perspectives by concentrating on the local economic development from where this author could get the required data. As a result, ‘fiscal decentralisation and local economic development in Ghana’ is a complicated issue for research to deal with economic, legal, and political issues due to the limitation of data sources and lack of previous research on the specific area.

In the case of fiscal decentralisation, most of the state employees and bureaucrats and political elites like to praise the donor agencies rather than exploring their own viewpoint of safeguarding national interest; in spite of the fact that they have individual analytical capabilities to categorise national progress and economic improvement. Decentralisation in Ghana was introduced by the military autocracy where the civil servants were bound to follow the orders of martial law proclamations without questioning.

Due to long time autocratic practice, the attitude of the civil administration and policymakers has shifted to an extent where they consider that the recommendations provided by the donor agencies are correct. This type of sensitivity of the state employees and bureaucrats deliberately leads to the wrongful path of development and generates confrontation for independent investigation, without interference of the donor agencies. This study has dared to stand for local economic development without bothering about the predetermined studies of the donor agencies and it is a challenge for this research to bring a free, fair, and imperial outcome in favour of local economic development.

In addition, most of the local researches with fiscal decentralisation have funded by the development agencies or guided by their nominated intellectuals. Probably, this is the reason why the outcomes of such studies have reflected the viewpoints of the donors without safeguarding the local interest of economic development. Until now, the donor agencies have been allocating huge grants to the civil society and non-governmental organisations of Ghana to propagate in favour of fiscal decentralisation. But none of the beneficiaries have doubted the intentions of the donor agencies in spending for gaining public support in favour of fiscal decentralisation. As a result, such conflicting reality of local economic development is another limitation for this study.

This author has engaged his efforts towards identifying the scope of economic development from the ongoing drives for fiscal decentralisation without any donation or grant. Due to financial constraints the budget for this research was very small and it has proved to be a limitation for this study. There are numerous studies and journal articles with information on the implication and effectiveness of fiscal decentralisation in different countries that apparently seemed very imperative to this author, but the price of such articles was not affordable by this author.

Another limitation of this study is the time constraint; the author has involved himself in this study with the aim to fulfil his academic needs for the PhD degree, so the author has to finish the study within the deadline provided by the supervisor appointed by the University. It is very difficult for this author to conduct a vast research with fiscal decentralisation in such a short period as there is a necessity of wider data collection from different districts.

Operational definition of concepts

If the accounting and financial reporting system of a country misrepresents the outcomes of fiscal decentralisation and economic reality of a public service, the capital flow would be misguided to the inappropriate sectors. Such wrong allocation of assets would hinder the local economic development and investment environment and as such, the local investors will have to pay higher opportunity cost (that will be more than the returns).

As a result, the optimistic business sector at the local level (the national small and medium enterprises) may suffer from lack of confidence. This might deprive them from proper investment because the national business concerns would make their strategic investment decision depending on the defective and manipulated information. This type of circumstance would generate a new evidence of corporate failure in Ghana, which is quite undesirable to both the central and local governments and also to the stakeholders. To avoid such a risk, it is essential for the legislators to ensure appropriate fiscal decentralisation enclosures for public service delivery with standard financial reporting system at local level.

Thus, it is most essential to investigate the extent to which the ongoing fiscal decentralisation process has enabled the local governments in ensuring business friendly environment within their jurisdiction. Such an environment could be created by facilitating uninterrupted public service delivery, hindrance free business entry, transparent financial reporting for all stakeholders along with a suitable taxation structure.

It has been evidenced from the fiscal decentralisation drives that the semi-autonomous tax agencies at local level could facilitate an important opening towards strengthening the performance effectiveness and influencing the decentralised tax system to collect local taxes along with non-tax revenues more successfully than the traditional tax collection process. It is thus essential to have an investigation on the existing tax and revenue collection model of Ghana.

The taxation standard in Ghana and its disclosures in context of decentralisation are facing chronological development with quick shifts for enhanced revenue mobilisation and to improve fiscal health. The regulators are trying to accomplish radical changes that can ensure transparency, accountability, and easy access for all without any hindrance. Although tax reformation authorities are always publicising that increasing tax structure has a well-built macroeconomic growth effect, but investigation with historical data of Ghana, comparative study on taxation and economic growth, and micro-level indicators like labour supply, investment demand, and productivity growth do not support such a verdict.

The global scenario of the public services delivery through local governments and recent socks of global financial crisis suggest that the disturbed regular service delivery in Ghana has emerged and developed because of external political economy rather than the internal factors of the public services providing local governments. Due to an unavoidable integration with the global economy, Ghana couldn’t keep its economy evade the negative impact of global financial crisis and the consequential collapse of the public service delivery system.

The implication and effectiveness of fiscal decentralisation are not poles apart from donor countries’ concurrent crisis. This study is thus, aimed at scrutinising the understanding of the emergence and development of fiscal decentralisation in Ghana along with the implications and effectiveness of the system in adopting the political economy of globalisation. The objective will be achieved by adopting an economic development approach based on the theoretical framework and with practical evidence from Ghana.

This thesis aims to investigate the following aspects:

  • Do the historical perspectives of the implications and effectiveness of fiscal decentralisation linked with local economic development suggest a watchful drive of decentralisation legends?
  • Does the fiscal decentralisation in Ghana improve the citizens’ standard of living by delivering improved quality of public service and effectual taxation structure in the country?

In addition, the more refined and vastly structured aim of this thesis has been designed to respond to the following six research questions; the answer to these questions would facilitate the legislators and policymakers to organise a policy towards a greater motivation for increased confidence of citizens on their local government’s performance and effectiveness.

Organisation of the thesis

In order to assess such issues, the thesis has been divided into six segments (chapters) as mentioned below:

Introduction

This segment brings forth the developments being done in Ghana and the factors that have an impact on the fiscal decentralisation program. It also brings forth the theoretical principles of the fiscal decentralisation program and the national policymakers’ dilemma in executing the same. It also raises the research questions and affirms the limitations and scope of the study used within this present thesis.

Review of Literature

This segment includes views of various scholars about fiscal decentralisation and the prevailing economic practices being followed by the government. Further, it illustrates the latest literature suggesting innovative methods to be used by national policymakers and how to foster efficient link between the local and central governments. This review also makes us understand the actual measures to be taken for economic development and how far they are being followed at the local government level in Ghana. In addition, the interpretation – by the national policymakers – of the achievements of the theoretical structure of fiscal decentralisation and the approach of the local government departments of Ghana have facilitated the delivery of state services.

Conceptual Framework

The following topics shall be discussed:

Decentralisation

  • Concept and Meaning
  • Measurement of the Degree of Fiscal Decentralisation
    • Political Decentralisation
    • Administrative Decentralisation
      • Deconcentration
      • Delegation
      • Devolution
    • Fiscal Decentralisation

Public Finance

Macroeconomic Stabilities

Political Economy

Impact

Fiscal Decentralisation and Public Health:

Fiscal Decentralisation and Compulsory Education:

Decentralisation and Social Capital:

Fiscal Decentralisation and Civil Society

Electoral System for Fiscal Decentralisation
  • Benefits
    • Increased income
    • Improved standard of living
    • Decreased mortality
    • Growth of civil society
  • Problems
    • Allocation
    • Distribution
    • Macroeconomic effects
  • Recommendations
    • Decentralised functions and competence
    • Determination of jurisdiction
    • Uniformity between inter-local and inter-regional income opportunities
    • Decentralised financing system
    • Globalisation of unavoidable external effects
    • Appropriate tax regime

Research Methodology

A crucial aspect of this segment is to establish a link between the chosen research methodology and the main aim of this thesis. The author has aimed to conduct the research in accordance with the quantitative analysis along with a case study approach and it should highlight the grounds that provide the researcher to adopt applicable research methodology in accordance with the previous research in this area that would be chosen through a critical appraisal. This segment will further enhance the author’s understanding on how the research on fiscal decentralisation will be conducted. It will also guide the author about population selection criteria, data assembly and treatment, and qualitative analysis, thereby explaining the process and the limitations of this study.

Results

This particular segment focuses on the collected statistics. It refines the obtained data, concentrates on the findings, makes the author understand the theoretical aspects of fiscal decentralisation, and generates an idea for the research. The primary data that has been collected from the response of the public representatives and beneficiary groups would be analyzed to bring the finding from each question of the questionnaire. This chapter would further statistically analyze the collected data using SPSS with an aim to generate the outcome of interviews and to process them in order to present the primary research outcomes of economic development of Ghana through fiscal decentralisation.

Discussion

This segment will include explanation of the results by reflecting an analytical view of the research and confer validation of the findings. Further, the findings will be linked to real-life evidences where the stakeholders are influenced to respond to the implication and effectiveness of fiscal decentralisation in local government bodies of Ghana.

Summary, Conclusions and Recommendations

This will be the final and concluding segment where all the findings will be clubbed to arrive at a conclusion. Some important recommendations will also be made here. Any scope for further research will also be discussed.

Review of Literature

This literature review explores the theories of the fiscal decentralisation and different models with the aim to integrate motivation of the national policymakers and local governments and allow them to function under the factors that uphold the implications and effectiveness of fruitful fiscal decentralisation. Prud’homme (1995) argued that in modern era, the emerging economy draws its attention towards fiscal decentralisation and has significantly exploded due to a number of factors (forces). The most significant driving force is doubtful benefits that might carry out allocating and cost production efficiency.

But serious drawbacks, posed with interpersonal and inter-jurisdictional difficulties, hampered macroeconomic stabilisation programs. This dissertation has aimed to scrutinise the implications and effectiveness of fiscal decentralisation for public service delivery by the local governmental bodies of Ghana. The research also focuses on motivation of the national policymakers for further reformation towards a substantial socio-economic development.

Dege (2007) provided a decentralisation policy review of Ghana in 2007 with an ordinary conceptual framework of fiscal decentralisation. The framework defines how the government would run fiscal decentralisation. But considering the theoretical perspective, there were certain gaps and the government of Ghana has been implementing a policy review; it is crucial to have an elaborate investigation. In this context and in order to assess the implication and effectiveness of fiscal decentralisation in Ghana, the literature review has to be organised with wider approaches from the viewpoints of most prominent theoreticians in this area.

Thus, the proposed literature search would draw attention with concepts from growing transformation of the fiscal decentralisation with local and national orientation from the experience of different countries, their institutional approaches, business model and value chain, and local communities’ motivation. The purpose would be to identify the factors that influence the legislators and national government to standardise the fiscal decentralisation practice in Ghana. This literature review would be well thought-out with the aim to theoretically respond to the research questions from the viewpoints of prominent authors, researchers and most influential theoreticians, books, web resources, and journals aligned with the most recent development of the fiscal decentralisation literature.

The Theoretical Framework of Fiscal Decentralisation

Decentralisation is a political agenda that has been prevailing as a process of increasing power at the level of the local or sub-national governments to enable better public service delivery to the local citizens through political administrative and fiscal transference, taking into account the regional interest. The concept of decentralisation has been clarified into three types, namely administrative decentralisation, fiscal decentralisation, and political decentralisation.

The theoretical framework of fiscal decentralisation deals with regional budget, local revenues, and legislative discretion of the local or sub-national governments for local taxation. Fiscal decentralisation should not be misunderstood to be pertaining to the fiscal policy or management, procedure of budgeting, or accounting standards. On the contrary, its function is to ensure effectual public service delivery through managing and administering the local government and collection of revenue in a manner that has been directed by the central government and concerned legislation.

Fiscal decentralisation has empowered the local or sub-national governments with a few rights to generate own revenues, but it does not allow them to reform the legislation according to their requirements. As a result, the local governments enjoy limited scopes to contribute towards the economic and social changes. Although the economic policy matters and the equilibrium of allocation among the regional governments are the at absolute discretion of central government, there are enough chances to hamper the development process or raise conflicts between the central and local government through fiscal decentralisation.

Both the supporters and opponents of decentralisation would theoretically promote the thought that fiscal decentralisation boosts the power of local or sub-national government, but a close investigation with the dynamics of fiscal decentralisation would evidence a horrible outcome at global level. The ongoing campaign and wave of decentralisation would possibly drive the world to spoil the conceptual framework of welfare economics and the core values towards planned and centralised welfare state. The theoreticians of fiscal decentralisation have rapidly developed their framework without any comparative study of planned and centralised economy.

They have focussed on the fiscal federalism theories that highlight the fiscal decentralisation as a higher degree of political involvement, democratic liberalisation, accountability to the people, and administrative autonomy along with fiscal efficiency. Such scholars have sidelined the comparative study of fiscal federalism or decentralisation and have concentrated on planned and centralised economy and have directed their criticism towards fiscal decentralisation. According to them, fiscal decentralisation generated soft budget constraints, macroeconomic volatility, and individualism that threatened the nationalism along with accelerated enlargement of bureaucracies. Strangely, they dropped out the comparison of economic indicators to centralised economy.

The historical evidence of decentralisation all over the world has no strong accord on the public welfare or economic emancipation through fiscal decentralisation. The features of decentralisation have delivered a boost to the powers of the sub-national officials, bureaucrats, political leaders, social elites and local rackets that ultimately nationalised corruption.

The legends of fiscal decentralisation such as the International Monetary Fund (IMF) and World Bank would like to consider corruption as ‘grease on the wheel of development’, which is a perverted outlook that may not support any economic development theories. Such logic of legalising corruption and irregularities inspire the local elites and rackets to support the spirit of fiscal decentralisation without considering the national interest or economic development; individual interest in the prime concern.

Beside the paramount literature of decentralisation, the real life evidence demonstrated that the economic development and poverty eradication is nothing but a cheap slogan. The empowerment of local governors, mayors, and other local representatives is not harmonically balanced and varies from country to country. The existing literature has failed to address the issue whether fiscal decentralisation always ensures the transfer of power to the local governments by maintaining balance of power between the central and local governments and also, whether there is any contribution of decentralisation towards the economic growth of a country.

On the other hand, the existing literature also failed to identify the masterminds who influenced decentralisation to make it a global agenda and a necessary condition for developing countries to get foreign aid from the UN and development agencies. Thus, the present literature has been aimed at bringing the factors that lie behind fiscal decentralisation to the forefront and to investigate the extent to which decentralisation is capable of contributing towards the economic growth of a country.

To do so, this dissertation would conduct a three dimensional investigation. In the first phase, it would concentrate on studying the descending redistribution of power that is gained from an obvious categorisation of decentralisation pedestal. The style of local authority in implementing the fiscal decentralisation will also be investigated.

Mastermind of Decentralisation

The United States’ federalism is the mastermind of influencing the rest of the world to align with decentralisation connecting with the core concept of democracy and good governance. The United States Agency for International Development (USAID) has fixed up its strategic objectives to patronise and promote decentralisation worldwide connecting with wider legitimacy and enhanced transparency along with accountability by reforming existing political systems towards more openness.

The organisation would provide financial assistance to the countries that implement decentralisation. According to USAID, the democratic decentralisation is the progression of shared vision and bilateral relationships among the central government and its local governments by ensuring people’s participation through democratic process of election; the engagement of election system at the grass root level would ensure sustainable democracy. Although the organisation upholds its chosen outlook dedicated to uphold the decentralisation along with democratic local governance, it has not mentioned what returns it gets through such voluntary alignment. It is also not clear why they spend a great deal of money for other counties while their home country is seriously affected by financial crisis and increasing job cuts.

The traditional sense of decentralisation pointed towards the diverse institutional reforms, while the economists in the public finance indicate decentralisation as an essence of fiscal decentralisation, aimed at improving the national and inter-governmental fiscal system as the top priorities with specific goals and objectives to gain economic growth. At the same time, academia in the field of political science considered decentralisation as an array of policy agenda that focuses on ‘who handles the power’ and ‘who are struggling’ to take control over the state machine through a democratic process at the local level.

The civil society and sociologists would consider decentralisation as a path of democratic local governance to ensure socio economic progress and people’s participation with local group’s involvement. This is the way in which USAID would like to demonstrate to the economists and social thinkers about the approach of decentralisation, but all the economists and social thinkers may not be in favour of such views and consider the real life evidences that are the results of decentralisation.

Theoreticians of international relations, who believe in the real life evidences rather than idealism, must express their doubt regarding the success of the United Nations and trustworthiness on its institutional framework to keep any positive impact on promoting global peace, even though they feel the necessity of such a noble platform. During the end of cold war era, the role of United Nations became suspicious and it failed to prove its natural responsibility as a global security provider, but has aligned to legalise American intervention in different independent territories; it echoes the voice of Pentagon by violating the principle of UN charter.

As a result, it has been argued by think tanks of the member countries that UN is no more efficient to control the concurrent global unrest or to stabilise the situation of natural and democratic stability, aligned with a lot of controversy of judgment. On the contrary, in the name of fight against terrorism and peacekeeping, it holds great potential for Americanisation. In this context, the UN and its different agencies including IMF and World Bank jointly campaign for fiscal decentralisation, even though denaturalisation has spoiled the prevailing political system of different countries, corrupted the administration, criminalised the public finance, and commercialised the public services.

The US Foreign Policy

At this instance, in order to understand why the United States of America is eager to patronise decentralisation, it is essential to keep a spotlight on the American Foreign policy. Core values of US democracy comprise of individualism, liberalism, and ethnocracy along with civic national identity. Its foreign policy upholds the historical characteristic of imperialism or neo-colonial politics of ‘divide and rule’ to ensure its unipolar state of power all over the globe. In the name of multi-polarity of foreign policy, the United States has established its unipolar status of international relations.

The country does not hesitate in initiating military intervention or economic oppression to ensure its exploitation; democracy, human right, and sovereignty of states are nothing but just vague slogans. In the name of fight against terrorism, it has violated all the prevailing norms and policies of world peace, conducted a number of military aggressions in different territories, and undermined the standard of international justice and human rights agenda. Moreover, the policymakers have assisted to generate liberal institutional provisions, to give up introductory values of the country to support specific groups of US Jews’ rights- regimes that have evidenced ethnocracy, which has inspired to abuse humanity in Abu Ghraib prison, Guantánamo Bay, Cuba, Iraq, Afghanistan, and Pakistan.

US Jews were fearful of being identified during the post World War–II era due to their close alignment with Nazis and they were charged by Roosevelt, the president of the United States, during that time. Due to official pressure they were eager to hide themselves from the masses. American Jews, with their continuous efforts, organised themselves as a pragmatic and effectual power. By 1967, they turned into a sub-national group with ethical alignment to influence the United States and the world in general.

In the concurrent year, the control of Jews over the US power and politics influenced its general election, where Jews had the power to decide the election of the President of the country. Instead of considering the political situation of the United States, the candidate who was capable of giving special care to Jewish interests was supported to be the President, regardless of his/her party alignment. Jews have tremendous control over the Federal Reserve Bank and the judiciaries of the country. Their incongruent power has flourished to influence the US foreign policy to align with Israel; this has hampered the global peace including Middle East unrest.

Although the US decision makers have the best scope to put forward humanitarian approaches for resolution of ethnic conflict, the US leaders prefer to choose inflexible ethnic solutions with strong militarily aggression, even if the situation does not demand ethnocratic solutions. The world has witnessed the US drive against Saddam by having a long military aggression. The model of approving rigid ethnic solutions that applied in Iraq has provided the global policy makers an opportunity to scrutinise the US policy in Iraq. It was established that there were no nuclear weapon in that Middle East country, but America affected millions of civilian deaths.

Even though this dissertation is not aimed at discussing the US foreign policy, a brief description is eminent in order to understand the reason why the United States and its developing agencies want to inspire fiscal decentralisation. In this context, it has been identified that the US foreign policy follows the divide and rule policy to weaken the countries with the aim to establish its influence and control on them.

Decentralisation seems to be an effective tool to divide and rule by creating conflict between the central and local government. Decentralisation is more effective to threatening the sovereign of the central government and by recognising autonomous local authorities while the local authorities or sub-national governments created by decentralisation would be entitled for their development decision making. At this stage, the sub-national governments could receive different foreign aid or loans from the US or UN development agencies.

With the critical terms of the loan it is easier for US policy makers to generate further conflict between the central and local government that ultimately helps to execute divide and rule strategy in the less developed countries. Thus, the decentralisation and divide and rule strategy is almost synonymous to establishing US influence on the rest of the world and this is why US foreign policy patronises decentralisation drives all over the world.

Centralism and Decentralism Good Governance

It is essential to find an answer to the question pertaining to good democratic governance that compares centralism and decentralism. In order to answer this question they explored normative models of democratic governance. It is understood that some democratic countries have better governance than others do because in the countries having better governance, political institutions promote enhanced social outcomes.

In order to understand the reason behind such difference in performance, it is essential to study the principles of democratic governance pertaining to centralism and decentralism. Neither centralism nor decentralism (individually) could ensure “good- governance”, but it requires a mixed approach of centralism and decentralism (which is termed as Centripetalism) to ensure an enhanced model of good governance with sustainable development.

The rising awareness about the best way to organise a representative democracy and good governance in past times gave birth to constitutional regime in England, France, and the US during the 1700s and 1800s. It has been proceeding with chronologically changes to deliver better governance. History suggests that the decentralised institutions moved forward and backward within two ideological grounds, one was decentralist paradigm and the other was centralist model. Between the two paradigms, the first one argues that good governance comes from the democratic institutions that follow the decentralisation system, where numerous powers for veto allow the system to form multiple sources rather than a single entry.

The second paradigm urges that good governance comes from effectively centralised single party sources that ensure enhanced accountability. Here, this dissertation reviews the historical arguments pertaining to the dominant models of governance. The primary purpose is to set up a new dimension of democratic governance, which amalgamates positive features and attributes of centralism and decentralism for the associated institutions and local governments of Ghana.

In real circumstances, the evidence of decentralism of modern era has accelerated with quite different scenario of theory and practice of decentralisation. The leading theoreticians view the decentralised institutions as a system to avoid straight popular statute and consider it as a moderate effect. On the other hand, some devious leaders are afraid that it (decentralisation) may urge for redistribution of wealth.

The elites do not like the decentralisation of power because they think that it would bring the people closer to the government; this, in spite of the fact that decentralised decision making has the prospect of good governance. There are some common perceptions about decentralisation that are prominent within the society and politics. This myth has enhanced the popularity of decentralised government and has helped in propagation of decentralisation drive all over the world.

A limited government and centralised administration could produce good governance as the human society has been developed by the individual requirements of the people but unfortunately, the governments are organised by the wickedness of evil people. The developments within the human civilization move forward with the collective efforts of the people. Resistance and encouragements by the people have generated appropriate direction for the governments to take the right action. Sometimes, the governments align with people’s choice and preference and at other times they try to impose evilness over the people, but the social progress and development never ends. Social changes or revolutionary shifts have been introduced by the well-organised and centralised political institutions that are distant from decentralisation; decentralisation isolates the collective efforts and hampers strong accord of ideological base.

‘Society in every state is a blessing’, while the governments in every country, including those called as good governments, are a necessary evil. Paine further suggests that the government prolongs the worst and impossible suppression inherited from the monarchy. Government established its hierarchy upon the palaces of the kings, ruining their paradise, and expect people’s conscience in obeying its orders.

Citizens have to necessarily offer a certain part of their assets to the government otherwise the government will take everything. Thus, in order to secure self and property, people have to pay tax. In exchange, the government protects for the rest of their property. Security is the true devise of government that people get with least expenditure and most benefit from the state, while the other public services have further costs; decentralisation would increase such cost.

Doctrine of Decentralism

In the concurrent era, most of the theoreticians of democratic governance have delivered their literature those are typically decentralist in nature due to their common postulation is that government would deliver best services to the people while political institutions would share their powers along with multiple autonomous bodies within the jurisdiction. Almost the ordinary citizens, NGOs, and international development agencies uphold such perception decentralism; there is nothing new in this paradigm as in the ancient era of earlier than modern age, the Greece and Romans presented their decentralism views to abuse of political authority of their monarchies which also evidenced in Italian, Swiss, and Dutch politics (Bahry, 2004).

Though there were, no theoretical framework of decentralism was not prevailed in that age a self-conscious awareness of the activists moved for decentralism, while the completely expressed theory of good governance and decentralism has originated and implemented from England during the seventeenth and eighteenth centuries following the English Revolution (Bahl, 1998).

The legal framework of Brittan had organised with three separate powers, exclusively independent from each other, where the King positioned at the top; in the second layer composed with Lords Spiritual and Temporal who were independent to their piety as symbol of aristocratically while the third layer composed with chosen people’s representative that called House of Commons. During that, it was a progressive form of decentralisation and separation of power that modelled as a democracy and chronologically improved as this collective authority put into action by diverse mechanism and conscientious to dissimilar interests through the British Parliament that has the absolute disposal to coordinate the three branches.

Each of the branch of separate three entries possess enough powers to repel any negative changes that may inexpedient and dangerous to the country’s sovereignty for which the theory of the mixed constitution has arrived with appropriate balance among the three parts and turned back to the Anglo-Saxon England. Such conception show the way straight to the theory of the separation of powers and articulated the great security aligned with a steady absorption of several powers in the same branch to provide appropriate guidance concerning who would administer every one of the branches essential to the constitutional means along with individual intention to mitigate possible encounters to each other.

The English Revolution has played an influential role to develop the conception of decentralism and the revolutionary activists collectively referred to as the commonwealth instead of conformist traditions of countries putting together variety features of decentralisation while English state is the first instance. The wave of decentralism flourished to the American Revolution that provoked by Old Whig philosophy while the British polity turned more and more centralised and the new polity comes into appearance that contributed a flesh decentralist principle in more than ever unambiguous style to attract people with easy understanding.

Moreover, the American Constitution has prepared with the doctrine of decentralism within the elementary law of the country where the federalism endow with an interpretation of decentralism complying with that law and the USA is the country that has organised consciously in accordance with the values of decentralism. The federalist ambition has engaged its efforts to neutralise ambition while the republican government has concentrated to influence the legislative framework essential for their ideological alignment rather than public good while the remedy of such dilemma is to split up the legislature into diverse branches with separate election model.

From the eighteenth century to the current up to recent era the US constitution, the core essence of decentralism, but the state government and national government has every particular agenda b dissimilar to each other, but balanced through the election model and their common goals and interdependence of each other in the society that put them to work together.

In the context of Ghana, the benefits of decentralisation are not quite eminent due the fact, as the development agencies advocated, that there are serious inadequacies in the practical evidence that the policymakers of Ghana are aware of designing the decentralisation strategy, taking into account the real success data. Moreover, the potential risks for decentralisation in Ghana have aligned to generate larger inter-district disparities and inequalities, connecting the dissimilarity of earning revenues, spending, and socioeconomic potential among the local governments. While some district assemblies have a better revenue base than others, this may encourage discrimination at the local public service delivery.

As a result, if the district assemblies manage their service delivery expenditure from their own resources without any transfer to and from the central government, it would lead to discrimination in the economic resource allocation.

Even though the government of Ghana has proclaimed zero percent tolerance for corruption, the bureaucrats, state employees, and revenue collectors have connived with the local police to practice serious corruption that has put the development of the private sector under severe threat (Quandzie, 2011). The leaders of the private sector business community urged that the anarchy of government employees in taking bribes has hampered the dynamic and efficient growth of the private sector. The unholy alliance between the corrupt public sector staff and bureaucrats is destroying the system by exploiting people and obviously hampering the sound economic growth of Ghana.

The cost of starting a new business in Ghana has been increased by about 70% due to the bribe-culture during the documentation process; it seems that each civil servant in Ghana has privatised norms for earning bribe. The Corruption Perceptions Index prepared by the Transparency International in 2011 suggests that Ghana ranks 69th in prevalent corruption. The growing corruption level has jeopardized the entire system and the prices of everyday commodity needs are skyrocketing with each passing day.

The local governmental bodies (such as the District Assemblies and Municipal Assemblies) created by the fiscal decentralisation are also deep into corruption. An investigation carried out by the Institute of Economic Affairs (IEA) stated that the District Assemblies of Greater Accra and Volta were at the top of the corruption table; these bodies were involved in corruptions amounting to US dollar 79,883.90 (by the District Assembly of Greater Accra in 1993) and US dollar 311,543.35 (by the District Assembly of Volta in 1994) (Garblah, 2003).

The bribing menace has engulfed the District and Municipal Assemblies as well as the judiciary system; business organisations have to bear the corruption charges for service deliveries such as land transfer (TRF: Anti-Corruption Profile – Ghana, 2011).

The complexity of the local regulations has raised lack of confidence among the people, while customary land ownership composition, along with the multifarious corrupt legal system, has generated the scope for taking bribe from the general public as well; the backward ethical groups are suppressed more than the educated ones. The investigation into the district and municipal leaders’ performance has revealed that the extent of corruption by the local assembly representatives increased drastically by 10% during 2005 to 2008. This happened despite the fact that the state ministers frequently warned the revenue collectors to impede corruption.

The increasing corruption scandals at the local level hint that the revenue collectors have a strong accord with the local assembly leaders, and as such they do not bother about the ministers’ warnings and continue harassing the taxpayers. Thomson Reuters Foundation also added that a recent research had demonstrated that 70% of Ghanaian families believed that local leaders of municipal and metropolitan district assemblies were totally corrupt due to which public services like education, pure drinking water and health care programmes were seriously hampered and no meaningful progress was made in the society.

Zoure (2011) reported that the Ministry of Interior allocated huge relief goods including food, medicine, winter clothes and housing materials for the people of the northern district of Bunkpurugu – Yunyoo in mid-August this year.

The goods were kept under the custody of District National Disaster Management Officer (NADMO) of the district assembly through an interesting formal procedure. The aim of this relief program was to encourage the local residents against the criminals; those were distressed during a state action to arrest a veteran criminal. Under the leadership of the District Chief Executive (DCE) of the local district assembly, a twelve members committee was formed to distribute the relief goods among the target groups of the distressed area, but at the time of distribution it was discovered that all the relief items were either missing or stolen.

The local police recovered some of the stolen relief items and claimed to have arrested two suspects, but did not disclose their names and identity to the public or media; despite their efforts, they could not hide them from people. The local media directed its attention to the decentralised local administration’s scandal. A subsequent investigation of the ‘Daily Guide’ identified that out of the twelve members of the district assembly, who were empowered to deliver the relief items, nine members were responsible for jointly carrying out the theft. One of the two suspects, who were caught red-handed by the police, was a district assembly member and the other was a member of relief distribution committee.

Unfortunately, the others involved in the theft (including the local District Chief Executive) were left scot-free due to their power and political influence. The media staff tried to take an interview of Philip Laari, the local DCE, regarding this scandal, but he avoided to face the media. This is not an isolated event from the prospect of fiscal decentralisation, but a hard reality of how fiscal decentralisation is enhancing criminal offence to the grass root levels of Ghana.

There have been numerous instances of female-abuse (co-workers and under-aged girls) in various local government bodies such as Obuasi Municipal Assembly and Kumasi Metropolitan Assembly (Obuasi, 2011). Unfortunately, most of such incidents are not reported to the police and the ones that have been reported, a reformative action is yet to be taken; but regardless of this, there is a lot of frustration and protest among the people. In one such incident, a government appointee (Secretary of the local assembly) at the Obuasi Municipal Assembly (OMA) took a twelve year old girl to his office and raped her after inflicting severe injuries.

The victim reported the incident to the police and even though the medical report also suggested molestation of the victim, no action has been taken so far; the culprit maintains that he is innocent. In yet another incident, a manager of the National Health Insurance Scheme in the Kumasi Metropolitan Assembly was infamous for his misconduct with the female co-workers. He threatened them of transfers to remote areas unless they heeded to his advances of sharing the same bed. The female employees were aware of his political connections and were afraid of raising their voice lest they should face the brunt.

But some female employees showed guts and brought the matter into limelight, thereby the media got involved. Consequently, the official was arrested. Such scenarios are not out-of-the-way occurrences but an ethical dilemma of administrative and fiscal decentralisation.

Corporate fraud in accounting is a common phenomenon of modern business, but Ghana evidenced the fraud of accounting in the state accounting and reporting system that gravely affected the socio-economic growth of the country. The Ministry of Finance and Economic Planning (MFEP) identified a fraudulent mechanism that was adopted by some of the employees of the Comptroller and Auditor General Department (CAGD). These employees connived with the pensioners and cheated an amount of ¢83 billion during the first three months of 2005 (Akoaso, 2005). It is noteworthy that though the culprits were identified, no serious action was taken against them.

In Ghana, district assemblies are the basic unit of local government that have organised under the fiscal decentralisation in the country. The aforementioned financial scandal demonstrates the extent to which the fiscal decentralisation has criminalised the public finance system of Ghana.

The pure doctrine of separation of powers has accelerated to establish and uphold the political authorisation of the government to split down executive legislature and judiciary in a manner that both are poles apart without any interference from each other. The government must also allow all three branches to work independently. Separation of power delivered an advancement of good governance that inspired the state machinery to rethink about the regional or sub-national separation of power. Thus, from the above discussion it has evidenced that the doctrine of decentralism has originated from the pure doctrine of power separation.

Federalism as foundation of Decentralisation

Federalism is the theoretical foundation of decentralisation that points towards the diffusion of powers among the multilevel governments of a country. The conceptual framework of federalism came into existence during historical times. Proof of this is evident in the association among cities and states in early Greece and other nations. Such confederations might differ from the performance of modern federalism, but the core values are the same.

Federalism is a political agenda where the functions of a government are distributed among the regional and the sub-national governments. Further, the central government in this system coordinates with the subordinate governments and makes final decisions at national level. From the broader perspectives, federal system allows a common area between the regional and central governments where the central government could establish its control only in the national level, but allow enhanced liberty for the regional government to perform independently. There is also a variety of federalism, which is named centralised federalism and it allows the central government to take control over the regional government in particular crisis.

The ideology of federalism has moderately diverse inferences for the states of the novel arrangement that entails that the national government would be unfettered, although the theory of federalism holds back the national government to avoid any prospect of conflicts between the state and national levels; separation of powers would mitigate intergovernmental deadlocks. The establishment of the American republic is the first polity to evidence federalism as a precise theory of governance where the Riker’s theory was well established to scrutinise practical approach of federalism. It has demonstrated that

  1. two ranks of government that rule the similar land and people,
  2. both ranks of government have at least one area of function where they enjoy autonomy, and
  3. the autonomy of the state governments has a guarantee by the federal government within their own sphere.

The doctrine of decentralism has demonstrated that it needed two fundamental features namely, separation of power and regional separation. Here, both the criteria of decentralism have been satisfied by the US federalism; therefore, federalism is the foundation of decentralisation.

Defining and Clarifying Decentralisation

There is no single term for defining and clarifying the multifarious dynamics of decentralisation and it would not be sufficient to provide a particular clarity to express the core essence of decentralisation, even though various authors have tried to provide different definitions considering its criteria and practical evidence of framework. However, they defined decentralisation as a development agenda that requires mutual understanding and associations between the central and local governments that connect with the local population through a democratic process, where the state powers are allocated among the local governments for their decision-making autonomy.

It would keep monitor the powers to build up and put the harmonised policy into operation as an expansion of self-governing processes to the grassroots levels of government with the aim to make sure that the democratic process would sustain at every level of central and local governance.

Decentralisation is defined as a shift of authority along with liability of public service delivery from the central administration to the next stage of local governments that are autonomous bodies that necessitate considerable reform of state service delivery to the local citizens along with restructuring of fiscal policy in an array of effectiveness. For better understanding, there are three types of commonly recognised decentralisation and these are de-concentration, delegation, and devolution. The distinction between these three foremost types of decentralisation would assist the policymakers with an enhanced potentiality for implication.

The first one, de-concentration, is repeatedly well thought-out as a lower profile of decentralisation and it reallocates the decision-making power along with fiscal and management errands surrounded by diverse levels of the central governmental officials rather than any local authority. This type of decentralisation generally transfers very limited responsibilities from central governmental officials to the capital city authority where the central government works. In a few extent transfers, it allows transfer of power to the provincial or districts authority, but generates strapping area of administration for the local capacity buildings under the control of central ministries.

The second one, delegation, is an additionally widespread structure of decentralisation where the central governments shift the task for decision-making, along with administration of public service delivery, to the autonomous local body, partially. The central government doesn’t directly set any control over them, but at the end of the day the local bodies are accountable to central government.

This type of decentralised local governments perform delegation responsibilities at the events of creating further public bodies for education, public health, housing and transportation authorities, including extraordinary project implementation units and enjoy an enormous extent of decision-making rights. Such decentralisation allows the local governments not to be liable from control over the central governmental employees, but has a provision to make them directly responsible for services.

Devolution, the last category of decentralisation, is where central governments devolve powers of functions of administrative, fiscal, and decision-making to the local governments within the framework of corporate status. Devolution decentralisation typically shifts the task of service delivery to the local bodies. These local bodies are administered by the elected mayors and other officials and are endowed with power to collect revenues from their own territory. They also have power for investment decision and for increasing the volume of service and revenue acceleration.

Elements of Decentralisation

The decentralisation is a time-consuming and chronological method that came into practice within a suitable legal framework to transfer power, responsibility, and accountability from central government to the local governments, connecting a range of elements like administrative decentralisation, fiscal decentralisation, and political decentralisation. However, decentralisation can take place in various forms in terms of decentralisation, devolution, and delegation while its implication has several dimensions as well as sequential stages to gain the objectives of good governance by the way of decentralisation and the stages are –

  • Administrative decentralisation (functional responsibility local governments);
  • Financial decentralisation (access to resources to generate own revenue);
  • Political decentralisation (accountability to the legislation);

The following figure demonstrates the decentralisation pyramid in which the dimension of three classes are illustrated with their interdependence –

Decentralisation Pyramid.
Figure 1: Decentralisation Pyramid.

The above figure demonstrates that centralisation is at the top of the pyramid from where the power transmits to the baseline of the pyramid, the political decentralisation, through administrative and fiscal decentralisation. For a better understanding of the terms, it is essential to discuss the three stages of decentralisation as –

Political Decentralisation

Political decentralisation has come into focus with an extremely admired strategy on the road to recovery public sector competence, awareness, and legal responsibility to the people by their elected representatives, where the improved scope for people’s involvement and rights within the system has asserted to generate political stability in the country. Although socioeconomic progression is the main objectives of political decentralisation, by the system inherited with different ethnic groups, left and right political supporters along with territorial divisions those are habitually dissimilar and very disjointed with the state structures, and raises the hazard of civil variance including the risk of ethnical conflict.

Eighty percent of democratised countries in the world are suffering from such conflict and unrest, where the less developed countries are evidenced with more vulnerable to the internal conflict in relation to the developed countries, failure of political decentralisation would bring more disturbed scenario in the state structure. Thus, the policymakers and theoreticians are needed to rethink that implication of decentralisation in developed and developing countries would not be same, and necessity to integrate the measures of conflict mitigation for social progress.

Administrative Decentralisation

The administrative decentralisation refers to the administrative authority re-engineering and relocation of civil servants from the concerned ministries and conveys their administration and controlling rights to the local authorities. It also includes the process of introducing a local payroll where the local governments are capable to hire and fire their employees without any influence of the central government. The policymakers and donor agencies in different countries are continuously pressuring to integrate administrative decentralisation as a development strategy to generate efficiency of civil servants in order to ensure good governance with greater than ever transparency and legal responsibility, and further effectiveness in the invention and freedom of public services delivery at local level.

The core values of administrative decentralisation framework would be based on the following criteria –

  • The rising tendency of administrative decentralisation would be aimed to identify the appropriate measures and procedure reinvention or reengineering the procedure of administering the civil servants for better public goods production and delivery;
  • The guidance and principles for administrative decentralisation would integrate the theoretical development on the organisational behaviour, regulation of public preference, direction to the fiscal federalism along with public finance standards;
  • To strengthen the local governments in their performance by boosting transparency and accountability for both services delivery and central transfers that would increase people’s trust and dependency on the state system (Dafflon, 1996);
  • To break down the bureaucratic red tape and let the administration to come out from the central monopolistic control along with innovative conducts that would allow local bodies to generate better public goods and services;
  • The entire drive for administrative decentralisation would be centred to endorse the economic growth, empowering with financial powerlessness of the state, conquering obstacles of development, by encountering with the concurrent debates regarding reformation, downsizing, and reengineering the public service delivery at local level;
  • To ensure citizen’s participation in the local development initiatives that are fundamentally a strategy for rationalising the reformations spread out by administrative decentralisation;

The framework for administrative decentralisation would design keeping attention to the absorption of organisational and institutional responsibilities that the local governments implement in favour of the state to the local communities where the central governmental principle would appreciate the new framework to allocate power in pluralist manner rather than the monopolistic practice. Abolishing the traditional monopolistic administrative system, it would develop accountability and transparency in the local administration through de-concentration, devolution, delegation and democratic centralism instead of institutional monopoly and centralism.

Fiscal Decentralisation

Fiscal decentralisation is the separation of fiscal power for the central government to the local governments to independently decide the local taxes and levy to generate financial resources for the local government to covey local governmental spending from their own resources; it is an integral part of political and administrative decentralisation (Mello, 2010). Fiscal decentralisation pointed to the configuration of the financial associations and correlations among central government connecting to its subordinate local government rather than traditional centrally controlled financial management (Mello, 2010).

The fiscal decentralisation process would alter the existing structure of fiscal policy by which the central government peruses the public service and development works at local level, replace it with a fiscal federalism that allocated powers to the local government to design and develop local budget, and finance them with their own resources without dependency on the centre.

Fiscal decentralisation is fundamentally a theme of transferring the power from the central government to the edge of the country, the marginal local authorities; it is exactly the devolution of designing tax structure, collecting revenues, local development planning, and budget along with spending powers to the sub-national, regional, provincial, municipal and other grassroots level councils. Due to more familiarity of the local governments with the local communities, they have the enhanced scope to know the actual needs and capabilities of the local people, and can effectually design tax structure and deliver public goods and services in effective manner than the central government.

Under the fiscal decentralisation system; the local authorities enjoy substantial power to sort out local resources, all the way through taxing they accompany with a strong tax support, while the foreign donors and developing agencies become interested to working together for poverty eradication, sanitation, education, and public health including public accountability. In practice, different stage of decentralisation correspond to the dissimilar technique of sorting out the better public service delivery process, where all three types of decentralisation have attributes that generate debate of better and worse outcomes; therefore, it is a matter of political decision of the country which would best fitted option for implication.

For technical reason it is significant to make it clear which system a country would follow to maintain smooth flow of funds to and from centre to the local governments and the mechanism by which the central government would administer its sub-national governments and ensure accountability in the grassroots level. It is not the same thing to transfers within the decentralised budget and allocation of budget central ministerial projects, transfers within the decentralised budget is a case of parliamentary approval for the funds for sub-national level while ministerial projects involved with bureaucratic processes (Mello, 2010).

The transfer under the decentralised budget is a prerogative of the sun-national or local governments while the allocation of budget under central ministerial project is a dependent variable upon the ministerial will and decisions for any fiscal year, but it is essential for the trustworthiness of decentralisation that sub-national authorities are capable of putting into practice of budgetary autonomy.

Mello (2010) pointed out that the devolution of fiscal power as well as spending errands to local governments chronologically goes ahead connecting with the separation of public services from the central governance through legislative reformation of the institutional framework aligning with democratic values are concluded by commencing expected local elections that provide the local governments to function independently.

Due to such mandate, the sub-national governments would be able to keep an imperative responsibility for poverty eradication and that would ultimately drive them engage themselves of the execution of MDG proclaimed by the United Nations by mobilising financial and physical resources from their territories. Moreover, fiscal decentralisation would make the local governments more concerned to sharing power further broadly in all regions of the state, and it has different ethnic groups to raise political harmony and stability through unified and more stabilised political system to improve the lifestyle and standards of the citizens.

Mello (2010) also added that huge numbers of countries in the world are becoming ambitious with fiscal decentralisation with the aim to re-locate the spending and revenue generation function to local governments and the devolution of such responsibilities of expenditure functions and revenue sources would generate an accelerated autonomy for debt management, including tax collection, along with budget implementation.

As a result, the mission of delivering public goods and services would gain a motion to comply with the standard of service delivery in accordance with the experience of the countries those already put fiscal decentralisation into practice.

The subsidiary principle of public finance urged that the functions of the public sector could be improved through integrating the diversity of culture, environmental concerns, conservation, and management of natural resources, along with involvement of local communities and social institutions in the development activities. To do so, it is essential to gather local information regarding the people’s needs constrains and prospect and it will help identify new area of revenue generation where the local authorities needed to demonstrate their highest accountability and transparency about their activities through setting local democratic tradition.

There is also evidence that high intensity of autonomy in the local level for policy matters would generate complexity and challenges and would threaten the core values of decentralisation programs for which the concept has designed and developed along with troubling the multilevel public finance system, troublesome public services delivery and upsetting macroeconomic stability of the country.

Moreover, greater autonomy in the local level would disturb the fiscal discipline both in the national and sub-national level, hamper the institutional clarity and accountability, and hinder the smooth delivery of public service that would ultimately spread out all through the nation. There is also possibility while the local governments enjoy greater autonomy, they can even take large amount of foreign loans from the foreign sources and developing agencies by devaluating national interest and can commercialise the public services to meet the interest of donors.

Thus, due to pressure and prescription of donor agencies need to scrutinise by the national government to protect national interest, and not to sanctioning greater autonomy of local government national that would destroy institutional clarity and accountability, raise corruption, raise spending beyond the means, and spoils the inter-governmental transfers.

As the fiscal decentralisation comes into implication through legislative reformation, the failure of local governmental policy would create discrepancy bias, and debate for elevated costs of fiscal decentralisation, which intensify the fiscal imbalances and it would accordingly put into danger to the whole macroeconomics of the country, without socially committed leadership at local level, no fiscal decentralisation would be successful. Recklessness in debt and expenditure management, lack of political commitment for social progress and honest leadership would turn the fiscal decentralisation into an anarchy that would be ruined the future prospect and made the central government liable.

Types of Fiscal Decentralisation

Liu (2007) conducted a landmark study with the fiscal decentralisation of hundred countries and identified major eight types of fiscal depending on the intergovernmental transfer, tax autonomy, expenditure assignment, revenue assignment, borrowing power and hard budget constraints are the base of classification while political structure and the level of political decentralisation is an integral part of the classification.

The political structure is the initial baseline for clarifying the fiscal decentralisation as the political configuration of a country has diverse potential mechanism of supranational governance including federal state and non-federal state including the figures and numbers of sub-national or local governments. Intergovernmental transfer is another criterion for classifying the extents of fiscal decentralisation by which the local government would transfer a particular percentage of its total revenue to the central government, at the same time central government would allocate a suitable allocation to funding local public services such as education and public health.

Tax autonomy is the essential feature fiscal decentralisation by which the sub-national governments enjoy fiscal freedom within their territory to determine their own taxes without any interference of the central government, which obviously integrated into regulation approved by the parliament. Under this provision, the local governments are empowered with right to set up or eliminate an existing levy (or determine a new rate of the levy), liberty to integrate new levy criterion, along with self-rule to grant levy allowances to the groups or individuals where they feel appropriate.

OECD (2006) identified expenditure assignment as another cluster for effective fiscal decentralisation that provides the sub-national governments right to determine own spending and choice of fiscal rules without any interference of the central government, but there is enough risk involved with this provision as the sub-national governments may demonstrate enough inadequacy regarding their transparency and accountability to the central government.

This provision is very sensitive for public services that generate huge difficulties for the national governments to refuse or accept bailing out for the sub-national governments at the time of their financial crisis or cost and demand pressures that turn the local governments unable to provide public services, in this context is more effective to keep provision for corrective action. Revenue assignment is another vital provision to classifying fiscal decentralisation; it has argued that greater tax autonomy allocated to the sub-national governments would bring higher extent of efficiency at the local level to identifying the additional revenue sources as they are closer to the local communities and their economic conditions than the central authority.

This provision would increase overall revenue income and intensify contribution to the GDP, but may lead to collective efficiency fatalities while the expenditure increases, the government many face difficulties to cut spending or lift up taxes during economic downturn (OECD, 2006). The degree of taxation autonomy and the source of revenue assigned to sub-national governments would also distress the prevailed fiscal rules in the country, while at first instance, an imbalance would raise between expenditure and income that may create soft budget constraint and to mitigate the crisis it would require fiscal rule, borrowing necessities and further dependency on intergovernmental transfers.

Costs and Benefits Model to Measure Fiscal Decentralisation

Lockwood (1988) pointed out that the economic environment of a country is a vital factor to measure of fiscal decentralisation through costs and benefits model under the changing dynamics of the global economy. To organise the benchmark model of the costs and benefits for fiscal decentralisation, it is assumed that a country for which the model would be developed, it is composed with ‘n’ number of decentralised administrative regions who are efficient to provide purely public services at the central and local level with instance of overflowing spill over into another area.

It has assumed that, the goods for public services have generated from an alternative private source and has funded by the taxes collected from the households, it also assumed that the options for the public goods and services among the regions would differ from each other and all the households in the given ‘n’ regions are identical. For easy understanding, it also has considered that there are just two regions with same number of population and the model would stabilise to harmony of public service, the utility of the households at region I = 1, 2 and could be expressed as –

Formula … … … (1)

Here, gi = degree of public goods in i region,

Xi = stage of consumption of the private good

Θi = enthusiasm to pay for local public goods in region i,

The spill over effects of the j region has huge externality of economic motion that progressed on the region i which is not openly involved with this region such as region i; therefore, the consequence would be U2 ≠ 0, and the budget deficit of the region i would stand as –

Formula… … … … (2)

Here

= donation of the private good,

= tax levy in region-i

At this stage, it has assumed that the utility for region-i is linear and the options of public service choice is quasi-linear; thus the Pareto-efficient distribution for the public goods within the economy would maximise the sum of utility expressed as follows-

Formula … …. … … … (3)

Therefore, the well-organised degrees of public service stipulations are exceptionally distinct in this framework and would consider two probable sharing out of tax and spending powers between the central and local governments and the tax maximising level would be at –

Formula… … … … (4)

Explanation of Decentralisation Theorem

  1. Under the reality where there is no spill over among the regions (U2 = 0) along with regions are identically unified (θ1 = θ2), the situation would indicate that the centralisation and decentralisation are equally effectual (Oates 1968);
  2. Under the reality where there is no spill over among the regions (U2 = 0) along with regions are not identically unified (θ1 ≠ θ2), the situation would indicate that the decentralisation is more effectual than the centralisation (Oates, 1997);
  3. Under the reality where there is spill over among the regions (U2 ≠ 0) along with regions are identically unified (θ1 = θ2), the situation would indicate that the centralisation is more effectual than the decentralisation (Oates, 1999);

Oates (2005) argued that in the above decentralisation theorem, the degree of welfare in the local level would be lower if the decentralised local regions fail to evidence their cost saving form the central provision while the intensity of consumptions of all the local regions at a uniform stage and the situation explained in the second theorem. While the Pareto-efficient levels of consumption among the decentralised regions would be unified, the generalised data from the local level would prove such consequence following explicitly from the exceeding discussion at this context (Kruger, Oates & Pizer, 2007).

The first and third theorem would also prove their reality while the tax structure among the regions would be considered uniform, the local jurisdictions are capable of providing public services without the contribution of the central government, and the regions are homogeneous regarding the public service preference.

Bayesian Model for Fiscal Decentralisation

Asatryan (2010) kept his dominant approach to espouse the “Bayesian Model Averaging’’ method for probabilistic forecasting of fiscal decentralisation that produced a logical system of accounting for the model to deal with concerned ambiguity through statistical benchmarks generated from the concerned data that usually guide to appropriateness of the policy recommendations and risk mitigation. Integrating the economic data of twenty-three OECD countries from 1975 to 2001, he engaged to identify the strength of the estimation for the linked uncertainty with huge explanatory variables and demonstrated that fiscal decentralisation has remarkably negative impact on the per capita GDP growth rates while sub-national governments enjoy full fiscal autonomy and share limited tax revenue with the centre.

OECD (1999) mentioned that under Paris Convention 1960, it has empowered clearly the sustainable economic growth both for the member and non-member states without any discrimination and that it has identified the area of sub-central government taxes. OECD also mentioned that SCG would enjoy fiscal autonomy in following areas –

  • Fix up both tax rate and tax bases; Attribute – (a)
  • Fix up just tax rate; Attribute – (b)
  • Fix up only sets of tax base; Attribute – (c)
  • Set up tax sharing arrangements with the central government; Attribute – (d)
  • Settle on the revenue-split; Attribute – (e)
  • Revenue-split could be altered with approval of SCG; Attribute – (f)
  • Revenue-split predetermined in the legislation, possibly would be altered by central government; Attribute – (g)
  • As element of the annual budgetary process central government could settle on Revenue-split; Attribute – (h)
  • Central government fix up both rate and base for SCG tax; Attribute – (i)

Some of the above attributes provided complete autonomy for the SCG – the others have kept partial autonomy – and controlling power to the central government. In practice, governments have to follow the constitutional arrangements regarding the fiscal relation between the local and central governments and the central government has the opportunity to bring any changes through constitutional amendment.

From the above clarification of OECD, it is understood that under fiscal decentralisation the determinants of Revenue autonomy of first degree (RAut1) for SCG would stand as:

Formula

Where the SCG would utilise own tax revenue as well as other non-tax revenue including central government’s total revenue, it has all around judgment that fiscal decentralisation and economic development have a non-linear relationship; thus, the above measure of RAut1 presented a quadratic form based on relatively authoritarian explanation of fiscal autonomy for the governments of sub-national level. At this instance, there is another chance to engage another inferior measure of revenue autonomy at second degree, according to which if the share of SCG would be the sum of own tax, non-tax, capital revenue, and the measure termed as RAut2, then it would stand as follows –

Formula

The above two methods are easygoing and depict a valuable explanation for better understanding, but there is enough scope for criticism as they have not dealt with the significant factor on how the shared taxes are distributed between the central and sub-central level; furthermore, horizontal and vertical transfers among the governments are not integrated in OECD (1999) guidance. Following the OECD (1999) report, there are huge studies to identify the relationship of fiscal decentralisation and economic growth, most of the pragmatic studies have endeavoured the factors that categorise the differences of growth rates with a considerable quantity of variables that are partly related with the rate of economic growth and the correlation could be structured as –

Formula … … … (1)

Where B = rate of per capita real GDP growth,

α = constant,

 = Vector of clarifying variables,

β = coefficient

= statistical error

Sala-i-Martin (1997) pointed out that the pragmatic growth economists encounter huge dilemmas, as the growth theories have not provided any particular explanation for the variables xi that has engaged in this regression, the missing norms of comparative guidance by economic theory about the variables that would be incorporated in the regressions have provided gaps for further research.

There are very particular controversial factors those have the strength of growth regression process that facilitated the accounting model for uncertainty evaluation measures, the technique of explaining the model of uncertainty is to assert ultimate true model is mysterious that in straight away entails the disappearance of the classical attitude that would generate a model other than traditional logic. Bodman, Heaton & Hodge (2009) added that the Bayesian Model Averaging has that celerity to identify the probabilities of all prospective methods that can restructure the traditional assumptions of the relationship of fiscal decentralisation and economic growth, with potential illustrative variables of k along with double combination of regression 2k, the growth model would stand as follows –

Formula … ….. … … (2)

Here, y = vector for growth rates of per capita real GDP

J = 1, 2, 3… … … n

α = constant term

= ‘n’ dimensional vector

β = ‘k’ dimensional vector

ε= vector of statistical error

σ= scale frequency distribution parameter

The opening of BMA approach presented each of the large figures of models  that have various likelihood for the ‘true’ model, which instinctively prefer preceding allocation for three parameters such as , σ, and  , the suitable preference of the allocation is extensively debated area of statistics that seriously influence the probability model pointing to a benchmark for prior allocation. Asatryan (2010) added that at this stage, the outstanding standard deviation for given the full set of regression A would constant the models, specifically for the interruption of α along with the variance parameter σ that would suggest a general, offensive, and non-informative form of the mode as –

Formula … … … … … … … … … … … … … ……. … ……. … ……. (3)

In the previous equation – (2)

indicates slope parameter that is to say  and it is the structure that indicates to the density function of the frequency distribution of  along with zero mean as well as covariance matrix:

Formula

where  indicated the sampling along with preceding setting with previous frequency distribution for the models of 

At this stage it is assumed that each of the model has similar and uniform distribution for all the model area with the same probability, then it would truth that-

Formula … … … … … … … … … …… ……. ….. (4)

The subsequent distribution for all randomly preferred subset of regression of measure Δ would be the weighted average of the subsequent distributions of same measure for each of the model where burden prearranged next to the probabilities  and the model would turn as – Formula… ……. … ……. (5)

Here the equation-(5) represents ‘Bayesian Model Averaging’ argument for the selected regression Δ linked with the provided by the previous frequency distribution parameters which are uncomplicated to express the marginal probability of any particular variable fit with the ‘true’ model, merely the total of the previous probabilities specifically  to put intuitively with BMA logic as –

Formula … ……. … ……. (6)

Here

 = marginal probability of model

Mj and f (y) = average marginal probability

The above probable models would be measured through the previous model probability as –

Formula …… (7)

Formula . … ….. … …….. (8)

The equation- (7) and (8) represent the ratio of incorporated probabilities where statistical terms generally indicate as BMA factor that serves the measuring scheme for the ‘true’ model linked with the probability ratio of classical econometrics that accessible to the BMA method with i = 1,… … ,n and t = 1… … T years so the equation stands as –

Formula … … ….. … … … … ….. (9)

While the country would be fixed for a fixed period then the equation would integrate with two-way error component and stand as –

Here

 = undetermined individual effects;

 = undetermined time effects;

 = remainder statistical disturbance term.

To remove the undetermined time constant heterogeneity, it is essential to calculate average of the equation for time and deduct from t, the equation stands –

Formula

Formula… … ……… (10)

‘I’ is the country based decentralisation data integrated in equation-(10), then the estimator stand as –

Formula………. (11)

Asatryan (2010) tested the equation with seventeen country’s economic data and pointed out that the above equation explored the relation between fiscal decentralisation and GDP growth rate where the BMA approach resulted the regression under consideration of explanatory variables applying appropriate weighting of the model.

Fiscal Decentralisation & Public Finance

Theoretical Explanation of Public Finance under Fiscal Decentralisation

This part of the literature review would keep its effort to measure to what extent the theories of public finance fits with the concept of fiscal decentralisation, how it conflicts within the intergovernmental fiscal relations in the light of the public finance. Mello (2010) explored that the theories of public finance extensively holds opposing views with the multilevel of governments, firstly it opposes different level of governance at the point of revenue mobilisation along with tax structure which already well-organised, allocating the rights of tax administering to the local governments would have a propensity to be fall down and become narrow.

At the local level, the non-tax revenues like fees, rent, and royalty have very limited opportunities, due to very limited area to impose tax, the local governments would fail to mobilise its desired revenue target (Ebel & Yilmaz, 2002). Due to the narrow shape of local tax base, there are also some provisions of tax exportation along with economies of scale and there is no significant means for the local governments to demonstrate effectiveness in the tax administration.

On the other hand, the central government has strong tax base and overall efficiency in this regards, thus it will better serve to collect revenue under the jurisdictions of central government and the central governmental will have the responsibility to share earned revenues with the local governments with the aim to address gaps of local revenue generation and spending.

The secondary reason of public finance to oppose different level of governance is the spending management, while the budgets are allocated among the local governments in a balanced manner; the local government’s spending would be embarrassed with the revenue increasing capabilities of the local government that aligned with limited sources and urge for vertical or horizontal revenue sharing.

For this reason, the most favourable size of the local governments is determined on tax competence criteria, providing the extensiveness of the tax bases, which would best fit those jurisdictions along with the readiness of central governments to transfer spending utility to the local governments while funding such spending would, necessitate greater revenue sharing. The significant outcomes of such composition of local governmental revenues would keep a key contribution for measuring and identifying the level of fiscal autonomy enjoyed by the local governments including its expenditure management, while the local revenue enlistment would make better, local government’s control on the tax bases would be significant.

If the legislative mandate has already incorporated the provision of policy and resources both decisions making autonomy, it will provide additional legitimacy over the use of the resources as well as improve the scope to administer them in accordance with their own preferences and requirements that the local leadership demands. At this context, the fiscal decentralisation possibly will produce simple delegation to the local government to turn into spending agents of the central government with partial decision making autonomy just on the procedure of utilising the public funds by ensuring institutional transparency and accountability.

The advantage and support of delegation in the expenditure management for governmental spending would boost the scope of more transparency and additional accountability for service delivery by means of free flow of information to the taxpayers of the country. Under fiscal decentralisation, the local options and people’s desires would exclusively engaged into consideration providing that restrictively of spending mandates would reproduce the option and choice off the central government particularly on the spending actions.

On the other hand, absence of clear-cut conditions concerned with revenue sharing possibly will generate further challenges such as, it could diminish the incentives in favour of local governments aimed to deal with shared funds resourcefully as well as deteriorate the range for synchronisation between the central and local governments. Moreover, options of expenditure functions may not correspond to the beneficiary to utilise the shared funds for meeting the public spending and it would trim down the effectiveness of the donors; it has predominantly played significant role at the horizontal level where the different beneficiary to utilise shared funds.

The tertiary reason of public finance to oppose different level of governance is that, the fiscal decentralisation has provided the greater autonomy for the local governments for budget making regardless of limited power for debt issuance as well as management at the local level and these limitations are institutional that provide several types of budgetary roles. At this context, the local governments possibly will exclude to utilising deficit-funding strategy for elongated time, as a result the local legislatures would face stronger constrain to endorse balanced budgets rather than any deficiency while the Ex-post budgetary imbalances would take place in spite of anti-deficit rations of ex-ante budget.

Consequently, the economy of the country would face adverse shocks with erroneous forecasting of revenues as well as spending and stop working to take into consideration of delegation liabilities where ex-post budgetary imbalances take place, the local governments possibly will be forced to take corrective measures to remove imbalances horizontally.

Fiscal Decentralisation and Intergovernmental Fiscal Relations

Decentralisation has generated worse coordination that spoiled the intergovernmental fiscal relations by discouraging fiscal discipline starting from lower level and then to the national level. Mello (2010) conducted an investigation with thirty countries and urged that the most imperative starting place of the failures of coordination is the point of agency problems take place on or after the delegation of fiscal power has transferred to the sub-national governments along with the ‘common pool’ struggle coupled with the financing the sub-national governmental spending through revenue sharing. Between the central and local governments, the agency crisis raises due to the gaps and irregularity on the free flow of information regarding the costs and benefits of public spending between for which fiscal powers are decentralised to the lower level and the relationship linking with the delegation and information irregularity appear into evidence with two layer.

At first instance, the delegation permits the central government to endow with the goods and services in accordance with the local market information as well as grants the sorting out errands with further influential incentives that assist to bring efficiency at lower level. As the local authorise has more scope to know the preference and choices of with less effort than the central authority, the fiscal decentralisation has advocated to diminish the information costs as well as increasing efficiency at local level while the delegation also contributes the government to come closer to the people by ensuring their participation.

Consequently, the information asymmetries connecting local communities along with the government would condensed through fiscal decentralisation implication responsibilities from end to end the transfers of spending powers to sub-national governments with increasing accountability, good deed societies along with inspection and monitoring of public sector actions.

Moreover, the reduction of informational detachment between the government and local communities would disturb the smooth provision of public services delivery while the implication fiscal decentralisation have the propensity to enlarge the gaps and distance among the central government along with the decentralised bodies to whom the fiscal powers are delegated for better public service.

As a result, it will diminish the control of central government on the decentralised bodies and the administration at sub-national level would evidence with decreasing efficiency due to lack of central guidance which would continuously increase the distance between the central and sub-national governments and the cost for information gathering would increase. In consideration of spending aspects, the central government would be incapable to investigate and observe the efficiency of local governments for their expenditure management along with the quality of public service delivery, from the revenue aspects, if significant tax bases are transferred to the local governments, the agency crisis would flourish, and the central government fails to scrutinise sun-national performance.

While the vital tax recourses are decentralised to the sub-national governments, it appears a horrible scenario of tax mobilisation due to lack of efficiency for tax collection at the lower level and it would seriously hamper the development initiatives that reflect through the reducing budget volume both at the central and sub-national level. Both the governments have to reduce their public spending, cut their budget for development projects and have to encounter with an unavoidable imbalance for the central government.

Mello (2010) mentioned that the dilemmas of revenue collection and scarcity of revenue sources at the local level have termed as ‘common pool’ where revenue sharing is the most significant instrument to take corrective measure for vertical imbalances between the intergovernmental fiscal affairs, although there are so many difficulties in the process of revenue sharing. The process of revenue sharing creates a bridge between the spending and revenue sources at the sub-national level, while most of their expenditures are funded through revenue sharing, but remain under pressure to downsize its expenditure function and they get incentives to utilising local tax bases to meet the expenditure the sharable revenues within the sub-national jurisdiction.

In the process of corrective measure for vertical imbalances funded by the common pool of resources gathered in the economy, it diminishes the expenditure of decentralised prerequisite that the local taxpayers pressured to tolerate where the burden of public services delivery shared through Intergovernmental exchanges that engender with political payoff to the sub-national governments. Moreover, the sub-national governments demonstrate their attitude to align with reckless spending and start competition to get higher share from the ‘common pool’ and to secure the regional resources and they also lead to continuous struggle to get grants and transfers from the central government and even foreign resources which has an adverse impact on the national budget.

If the country is in a practice of rigid revenue- sharing approach and allows automatic transfers in every fiscal year, the central government lifts up taxes to progress its fiscal strength, the central government grants a certain amount of corresponding revenue to the sub-national authority free to spend without any liability. To achieve such premium gains by the sub-national government tend to hold back, the prospective of dropping fiscal deficit by imposing the tax burden on the people, while the spending programs of the country are completely financed by the central government, devoid of conditional joint funding of the sub-national government with incentives to setback adjustment of the common pool dilemma.

The sub-national jurisdiction has limited scope to free ride with the extra load of fiscal economising have to share horizontally among the citizens of different region of the county while the troubles vertically shared intergovernmental levels taking corrective measures through revenue sharing and urge to adopt macroeconomic stabilisation strategy at national policy level.

Fiscal Decentralisation and the Stock Exchange

While the local or sub-national governments are in crisis with long- term financing, they would face such crisis by issuing ‘golden-rule’, the special debt opposite to common obligations. In this connection grants and transfers to and from the central government is another supplementary instrument utilised to backing the investment spending which would devastate the fiscal aptitude of the local or sub-national governments and the most common merits of fiscal rules would be measured with basis trade-off connecting with short-term budgetary flexibilities along with long- term fiscal stability.

However, the fiscal rules by the central authority have a propensity to compel with fiscal discipline at subordinate governments and such rules impose boundary to the capabilities of the sub-national governments to finance public prerequisites at the lower level of government with horizontal taxing, and harmonised management subsequently the sub-national governmental indebtedness possibly will be guarded through the market forces. At the lower level capital markets, it would demonstrate the scarcity of prospective buyers for sub-national debts, as a result, sub-national bonds would not get any formal market, and the central government would be considered the foremost source of credit to the sub-national or local governments.

In this context, the sub-national bonds carried the value of a modest form of promissory notes and accepted by the central government and let these bonds to trade under the central control in the market like other corporate bonds and treated as sub-national governmental debt market without further constrain to the local governments, but maintaining accounting standards and transparency.

Consequently, under fiscal decentralisation while the sub-national debts are traded, the stock market needed to maintain discipline very strictly and the sub-national governments have to follow the accounting standards that the listed companies of stock exchange are maintaining, and the sub-national governments have ensure their transparency in budgeting process, independent auditing, along with regular publication of financial reports.

The timely publication of disclosure of sub-national government’s annual report with public finance data is an essential condition while the other factors are harmonising the preventive the scope earning management or any manipulation and accounting fraud to get out of inflexible balanced-budget where the credit rating agencies would monitor the sub-national governmental performance to ensure well financial governance.

Fiscal Decentralisation and Public Sector employees

Martinez-Varquez and Yao (2009) conducted research to examine the connection between public sector employment and fiscal decentralisation considering the fact that such employees hold a significant share of total employment while bloated bureaucracies and over-staffed public ventures represent a large trouble for various least developing and transitional nations in the world. Martinez-Varquez and Yao (2009) further addressed the view of renowned authors (like Rama and Martin) in order to provide example how over-staffing takes many form and how excessive number of agencies along with ministries influence the economy of the country; therefore, it is quite natural that retrenchment in public sector employment come to the front position of the restructuring programme.

However, Martinez-Varquez and Yao (2009) identified the role of decentralisation as the reform process of this sector and they further observed that decentralisation may assist contain the increase in public employment though it is important to develop efficiency and decision-making process of the public segment workforce. Furthermore, decentralisation has prospective chance to enhance innovations; therefore, fiscal decentralisation reform could work as therapy for the dilemma of swollen bureaucracies and excessive public enterprises in least-developing and developing nations (Martinez-Varquez & Yao, 2009; Gockel & Vormawar, 2004; Gimpelson & Treisman, 2001).

However, some countries have excessive public sector employees known as the cross-sectional variation in public sector employment and the overall impact of fiscal decentralisation on this division depends on mainly two factors (Martinez-Varquez & Yao, 2009; Gockel & Vormawar, 2004; Panizza, 1999; Gimpelson & Treisman, 2001).

Fiscal Decentralisation and Macroeconomic Stabilities

Iqbal and Nawaz (2011) pointed out that there are huge studies on the fiscal decentralisation and its macroeconomic outcomes, where some of studies demonstrated that decentralisation has optimistic influence to reduce negative association between macroeconomic volatility in terms of average inflation rate. Due to fiscal decentralisation and its impact on the independence of central bank, there are some noteworthy negative impact on inflation, but the expenditure and revenue devolution would reduce budget deficit that ultimately bring stable macroeconomic environment (Iqbal & Nawaz, 2011).

On the other hand, a large number of economists pointed out that the fiscal decentralisation has serious negative impact on the macroeconomic stability arguing that it has no statistically significant positive impact to manage price inflation, but generate macroeconomic imbalances and further complexities (Iqbal & Nawaz, 2011). Thus, this cheaper would investigate the macroeconomic outcomes of the fiscal decentralisation and this discussion would be organised with following sub-chapters –

Decentralisation and Macroeconomic Outcomes

Rodden and Wibbels (2010) added that for the last few decades most of the economists and political scientists encouraged that devolution of decision-making with the logic that it could evidence greater economic performance through shared authority and multi level governance that can ensure well-organised public service delivery, people’s integration and effectual market mobility within the regions. At first glance, decentralised could easily triumph over the aggregation and information dilemmas by bringing the decision makers more intimate with the people’s preferences; although the service quality could vary among the regions, the decentralised authorise could assist the electoral process by mitigating agency crisis (Rodden & Wibbels, 2010).

On the other hand, the sub-national and local policymakers could utilise their capabilities to influence vote moving towards the jurisdictions that propose with most lucrative tax structure along with comparatively better services while the recent research have raised question to the pragmatic soundness of the propositions and assumptions of decentralisation theories.

The welfare economists usually interpret the difference between federal and unitary systems in context of accountability and effectiveness advantages of decentralisation that is most convincing as the autonomy of sub-national governments would diminish the credibly of central government while the federal system identified as exclusively market faced system reactive to internationalisation and localisation as integral part of global economy.

The most familiar benefits of decentralisation also pointed to the open political rewards of federalism that alarms democracy raise extreme public spending where the self-governing sub-national governments act as a widespread control on the market-hindering urge of the central government by manipulating economic policy where the strong sub-national governments could check and balance the actions of the federal government.

Moreover, decentralisation would introduce competition among the regional governments regarding their tax expansion and collection, revenue distribution and investment restrains linked with their size of the public sectors, effectiveness of public services delivery, and demand and supply gaps of public goods that bring positive implications in the macroeconomic performances of a country (Rodden & Wibbels, 2001).

Thus, the federalisation also preferred that the unitary countries in context of increasing politically independence, accommodating monetary policy of the central bank, competitions among the sun-national governments, increasing public spending, enhanced capital mobility that has urge for fiscal balance within the nations. Although the theoretical implication of federalism emphasised on the independence of central bank’s function to address appropriate monitory and fiscal policy, but the evidence of federalism in US and European countries demonstrates enough slack fiscal management, huge political influence on the central bank’s function along with highly unstable inflation rates (Everson, Majone & Schout, 1999).

As a consequence, it is criticised by the supporters of centralism, which fiscal decentralisation intensifies collective dilemmas for establishing and implementing any conservative economic policy in the greater interest of the whole nation. There is a common picture globally that federalism empowers local politicians, rackets and elites those who get incentives to destabilise and weaken the macroeconomic management, hamper the process of market reforms along with other policies those gear up national economic growth and ensure uninterrupted public services.

The selfish nature of local leaders and elites perform such action either by misusing autonomous power provided by decentralisation or by influencing policy making process providing veto and standing against the central decision, to overcome such strong restraints, the central government has to move from the decision or negotiate with them under the table providing undue advantage and even bribing.

On the other hand, it has long alleged that fiscal decisions of the decentralised bodies would undercut the macroeconomic management of the central government by their debt crises, while the excessive borrowing of the regional governments would provide excessive burden on the economy that move macroeconomic imbalance beyond tolerance level. The pragmatic literature of developing countries evidenced that federal structures are more vigorous than the unitary systems spread out fiscal and monetary mismanagement, as there is no coordination among the taxation policies of the regional governments and for any endeavour to bring balance of budgets along with price stability would require simultaneous action by the multiple level of governments.

The theoretical explanation of decentralisation may not support any coordination or harmonisation among the sun-national governments and it creates enough chance positive externalities in some part of the country while the others many face crisis with negative externalities.

The most common and adverse practice of the regional governments is that they spend beyond their means with the expectation that the central government would finally endow with bailout for them and it may impose unanticipated negative revenue shock for central government. To attract voters the regional governments are not willing to cut their expenditure and reluctant to increase tax, but enthusiastic to impose burden on the central government externalising the political costs, such practice would lead to rising stress on the whole public sector deficits along with exploring inflation.

Monetary Policy of Fiscal Decentralisation

Shah (2006) pointed out that the function of monetary policy is to formulate the control over the degree of fiduciary money supply, rate of change including price level, inflation rate, rate of exchange along with growth of aggregate income and such control always aimed to provide micro-economic stability of a country. To preserve a steady macroeconomic performance both the centralised and decentralised countries uphold the monetary policy as an issue of central control although there are some point of view to integrate regional aspects planning and implementing monetary policies.

Such argument may not be satisfactory for the small optimal currency areas and differential astonishment of exchange rate is unpredictable under the constitutional obligation for fair treatment among the regions, but the dilemmas occur while the central government lift up debt from the domestic market and at the same time regional governments take foreign loans.

Under the centralised monetary policy the monetary authority required to have well-built devotion for price stability to stabilise the macroeconomic of the country as the citizens would anticipate to increasing money supply to work against the recessionary economy and failure to do so would concentrate the recessionary impact for a long time. There is enough evidence that such initiatives of monetary authority have assisted to attain a degree of credibility in this regards by strengthening commitment of central bank continuing a rigorous reduction in the monetary base either by fixed exchange rate or to monetary rules or even by declining foreign exchange reserve.

The empirical evidence offered that as an independent monetary authority, the central bank with very particular focus on price stability with the aim to keep inflation under control; thus, pursued by the both centralised and decentralised system, while the theoretical explanation of fiscal decentralisation has confirmed the independent role of central bank.

Fiscal decentralisation and Independence of Central Bank

Hayo and Hefeker (2001) explored that with the objective to achieving price stability in long run, the monetary policy has emphasised on the independence of central bank, and the pragmatic data from more and more countries including the OECD nations have confirmed the emergence of CBI and in the global context, the European Central Bank enjoys highest independence. Barro and Gordon (1983) explored the conception that the central bank being the highest monetary authority of a country has to maximise social welfare of that society with absolute control over the rate of inflation while it is a best apparatus to diminish real wage, but boosts employment opportunity and output in the overall economy in a particular period.

Ismihan and Ozkan (2003) stated that setting the rate of inflation above the desired level would settle the wage at a standard level although there is not a monetary shock or employment gains, but the optimistic rate of inflation would assist the government to maximise welfare with incentive to wage contract by balancing employer employee relationship. Ultimately, the positive rate of inflation has no direct benefit in the economy, but an organ to stabilise the monetary policy while the conservative policy of central would result poor monetary stabilisation; consequently, the lesser standard of inflation would bring possible price of elevated output unpredictability while the conservative monetary policy would resolute the dilemma of inflation bias.

Rogoff (1985) critically illustrated the rationale of the major justification for the central bank’s independence arguing that this type of independence corresponds to the conservatism while the developing countries evidenced that the independence of central has negative relationship with inflation and CBI is necessary, but not sufficient condition to sound monetary policy. Some of the economists demonstrated that CBI also not concerned with price stability, but the emergence of CBI is to provide credibility to the monetary authority to rescue the central bakers free from political influence, due to fiscal decentralisation, the stakeholders would try to influence the policies beneficial to them, which is difficult to ignore by the civil servants.

For instance, the central bank of Belarus enjoys higher extent of independence while the inflation enlarged severely; the head of the central bank has sent for imprisonment by the finance minister due to his failure to address appropriate monetary policy along with price stability. Thus, to avoid any risk of external influence on the central bank, the government would be interested to uphold the independence of the central bank.

In the decentralised countries, the legally independent central bank is more, as the crucial government would try to influence the vicious circle of political business to enhance the probability of being re-elected and to do so they will use monetary policy as an influential instrument. If there are no legislation for the central bank independence and its appointment process, the government will recruit the political clowns as central bankers in accordance with their party preference to manipulate the monetary policy, thus independence of central bank is essential under fiscal decentralisation (Kalinga, 2010).

Influence of Fiscal Decentralisation on Macroeconomic Stability

Smoke (2001) pointed out that, in simpler form, fiscal decentralisation is a form of decentralising Federal policies and functions as a whole. Technically, revolution of fiscal decentralisation started during early 1980 by reforming national economic systems. Alternatively, it is significant mechanisms of promoting development of public industries due to private industries are significantly attached with preoccupation.

More specifically, fiscal decentralisation is a framework to redefine and recommend how significantly government’s economic policies would change as well as improve performance. As start of 1990, concept of fiscal decentralisation had been popular due to elevating development parameter though many cases demand high cost. Conversely, in case of uneven performance, worldwide attraction of fiscal decentralisation is now increasingly high rather than prior. For more clarification, proper practice of the fiscal decentralisation along with its conceptual foundations attributed with –

  • Review the reasons behind preferring fiscal centralisation in developing regions as well as recent trend of changing fiscal policies;
  • Significantly consider key issues of typical fiscal decentralisation theory and practice and influence on economic development of developing countries.
  • Analyse major demands along with core demerits those structure and make available empirical evidence and
  • Finally, structured merits and demerits are utilised to promoting concept of fiscal decentralisation for an effective economic development;

On another hand, from viewpoint of economy and politics, other than elevating economic status, fiscal decentralisation is a core driver of democratisation development. More briefly, in case of fiscal reformation, local government is always under pressure of dearth of applicability that gradually slower development procedure. Alternatively, current modes of fiscal decentralisation have plenty of doors for the developing countries though have significantly lack of comparative information. At last, from viewpoint of developing region, another key limitation of fiscal decentralisation is considerably lack of anecdotal evidence to structure additional effective public policy along with lack of broader realistic case analysis that would lead superior conceptual framework. Model of fiscal decentralisation connecting macroeconomic stability can be in several models illustrated as below-

Political Economy/Symmetric Fiscal Decentralisation Model

Lockwood (2005) defined that; fiscal decentralisation under political economy attributed with several formal models those emphases on two issues, such as –

  • improvement of preference matching and
  • Government’s accountability (León-Alfonso, 2007);

Moreover, due to a framework of empirical evidence, the political model has also known as the systematic approach of fiscal decentralisation. More particularly, this model has hands on experience to work on legislature bargaining power of buying and selling public goods (Lockwood, 1988). Additionally, in recent times political economy has involved with electoral economy in order to outline government’s accountability rationales. Under political economy approach, behaviour of fiscal decentralisation merged with government’s behaviour by attaching with both national and local institutes as well as with their strategies, for instance, formation and practice of legislatures, arrangements of elections and selection of fiscal policies where as traditional centralisation approach is known as benevolent of social planner.

On another hand, key complexity of political economy model is that it is an unprepared assumption of forming political uniformity, but the distinctive feature of the models includes decentralisation of costs and benefits that minimises internalise tax failure cases of a country.

The Asymmetric Fiscal Decentralisation Model

Veljanovski (2007) described that considering public finance theory, there are several disciplines of fiscal decentralisation model and amongst them, the asymmetric model is most significant, and core sense of the model is transferring fiscal powers at diverse volume. More specifically, for national and local development, asymmetric model is assign to attach with diversified authority as well as responsibility. Then again, asymmetric fiscal decentralisation is also involved with resolving specific needs fulfilment where political decisions have worked for multidisciplinary group of people of a country and for specialised case, political decisions are also significantly considered multi-ethnic group of people of a society. From viewpoint of political decision makers, fiscal decentralisation is a key tool of political stability as well as territorial integrity.

Alternatively, in the light of public finance, core competences and responsibilities of fiscal decentralisation speaks for enhanced fiscal rights as well as powers for the multidisciplinary group of a territory. Considering these issues, asymmetric model is significantly effective to tie between central authority and the respective local authorities. More specifically, asymmetry decentralisation model is worked for –

  • Political asymmetry focusing non-economic as well as political issues to diversify administrative responsibilities,
  • administrative asymmetry to execute deeds among central, local and international authorities and
  • Fiscal asymmetry assigns to form financial dimensions of a territory. For instance, sources of central tax revenues as well as their distribution, sources of domestic expenditure and non-tax revenues and by assembling these three, the central authority is outlined domestic tax levels or parameter.

Finally, from aforementioned discussion, this part of the paper may conclude as, the asymmetric model is performed for –

  1. Superior quality of public services attributing efficiency and responsibility.
  2. In addition, most proficient weapon to confirm territorial unity, prevention of civil war, prevent secessionists tendencies among neighbour regions, prevent aspiration tendencies to succeed diverse republic and provide cordial support for effective grass–root democracy as well as outline ethical nature of the fragmented societies.

Averaging Approach Model by Bayesian

Campbell, Bodman and Hodge (2009) pointed out that, the averaging model is also termed as the BMA model that proficient to draw liaison among fiscal decentralisation and the economic growth of territory. Alternatively, the BMA model can be termed as a consideration of diversified measures of fiscal policies that allow incorporating uncertainty models of the empirical methodology. Some research on this models recommended that fiscal decentralisation and the national economic growth do not exist in a straightforward status under long terms coefficient estimate study.

Meanwhile, BMA is rather influential on economic growth performance of enhanced economic status and application of the model that has allowed not only partial control of uncertainty, but also considerably influence on key indicators of economic growth under fiscal decentralisation. Technically, positive effects of the BMS on national economy are vast vertical fiscal imbalance to centralise authoritative powers of taxation and conversely decentralise national expenditure frameworks. Now, key limitation can be addressed as –

  • Insufficient investigation for significant choice of sources and
  • Unexplored consequences.

In another word, limitation of the BMA model structured through priority base benchmark distributions that do not carry massive influence on long-term posterior analysis. On another hand, in the light of sixteen indicators of macroeconomic fiscal decentralisation, there has no hypothetical consensus on appropriate measures of fiscal decentralisation for an accurate data on central government’s revenue and expenditure to segment tax revenue where as core benefits of accurate assessment of fiscal decentralisation deliver government’s autonomous authoritative parameter. More specifically, under growth equation considering population growth or volume of human capital and other indicators the BMA would be ideal assessment tool of national expenditure and additionally, several decentralisation assumptions could be developed.

Central Government Revenues under Fiscal Decentralisation

Colm (1937) pointed out that, from viewpoint of statistics the central government revenue is a measurable social product where key component is tax. Alternatively, concept of the central government’ revenue is principally derived from pure exchange of economy. Typically, the economic policies and the inter-players like prices and costs ruled and define how common people live in a country and conversely, in practice, economics system has also taken into account the non-tax sources as central government revenue where trade-off between price and cost along with social group disposal also significantly consider. On another hand, modern economic theory pointed out the number of sources as central government revenue and in broader term these sources are categorised into two forms namely-

  1. Tax revenue and
  2. Non-tax revenue;

More specifically, tax revenue is derived from numerous sources and those can be classified into two forms-

  1. Direct taxes and
  2. Indirect taxes

Where direct tax included income tax, wealth and property tax, gift tax and expenditure tax and conversely, indirect tax sources are customs duties, excise duties and sales taxes.

Central Government Expenditure under Fiscal Decentralisation

Akrani (2011) defined that the concept of the central government expenditure or spending has incurred through three ingredients namely, i) central expenses, ii) state expenses and iii) local government’s expenses. On the other hand, the union government’s outflow of funds would be articulated in such a manner that it is able to meet the collective demands by utilising the aforementioned basis of expenditure.

Historically, due to small size of government expenses, most of the governments pursued the laissez faire economic policies as well as functions all over the nineteenth century. But from the early of twentieth century, this picture has totally changed due to expansion of source of expenditure, income level along with its distribution and most importantly, vast change in economic policies namely, fiscal decentralisation. Moreover, in budding countries, central government expenditure strategies augment national economy and successfully endorse employment prospects. Additionally, such strategies play a significant role in minimising poverty ratio as well as income distribution disparities. Considering all these facts, central government expenditure can be classified as –

  • Functional expenditure involved with fundamental functions of a government. Revenue and the capital expenditure featured with government’s current consumptions closely affiliated with entire government’s functions and in additionally,
  • In order to peruse productive capacity of national economy the capital expenditure has also incurred with several dynamics.
  • Transferable and non-transferable expenditure attributed with expenditures those have no corresponding return and expenditure involves with creation of income sources and
  • At last, productive and unproductive expenditure where the productive expenditure involved with infrastructure development like agriculture and the unproductive expenditure depend on trends of national consumption.

Public Debt under Fiscal Decentralisation

Panizza (2008) illustrated that, traditionally, developing countries like to define the term public debt by emphasising on their external debts. In order to introvert public debts, recently numerous developing countries have outlined aggressive fiscal policies; in addition, the policy makers have already moved towards to substitute them by available domestic debts. Alternatively, definition of public debts can be noted by assembling domestic as well as external debts of a government.

Hypothetically, public or government debts in developing countries are now significantly consider both conceptual and practical issues two sources of debts with potential opportunities as well as threats due to global economic turmoil. Furthermore, the illustrative analysis of public debt has also focused on potential attachments with domestic and external debts though there have low prospect of reducing sovereign financial risks. More specifically, to hold macro-economic stability elevating public debt is not smarter one because, modes of public debts are always under pressure of high interest rates along with low domestic private investments.

Key challenges for the developing countries involved with escalating interest rates, which is an ideal source of creating strain on budgetary resources. Substantially, stress of high interest rates make slower economic momentum of a country as well as severe negative effect on social development sectors. In case of external debts, most of the bilateral and multilateral sponsors charge low cost of interest, but core dilemma is here that inherent risks of exchange rates during accumulation of foreign currencies. For more clarification, external debts of government left vulnerable scope of accessing into international markets as well as nursing external accounts.

For this reason, policymakers are in great trouble of strategic decision making during accumulating public debts and preferable common sources of government’s portfolio violate a lot. Moreover, medium scale government’s resources like sources of fund, available fund, cost of interests and consistent risks are also hampered as well.

Forecasting Procedure of Public Debt under Fiscal Decentralisation

Halder (2007) pointed out that, in the light of fiscal decentralisation, forecasting methods of public debt is significantly linked with economic growth as well as external economic dynamics where concrete appraisal tools of fiscal decentralisation also rather important; to elaborate forecasting procedures of public debt, this part of the paper principally focuses on two standards, such as –

  • Expenditure ratio (ER) and
  • Revenue rations (RR) and additionally, introduces the composite ratio (CR).

Before the attempts to discuss forecasting procedure, it is essential point to note that strategic decisions and to draw favourable economic outcomes, public debt measures have required considerable attention on aggregate land area as well as population density. Alternatively, the CR has rather effective power of decentralisation compare to the ER and RR. More specifically, it has already discussed that; fiscal decentralisation is a form of devolution of fiscal authority where parameter of power of the root levels of government is compared to the central government. Furthermore, the CR has illustrated here to present an unusual view of public debt measure that attributed with larger accuracy. In order to facilitate sound comparison, brief overview of three measures have plotted below-

  1. Expenditure Ratio (ER): mathematically, the ER expresses the ratio between aggregate sub-national government’s expenses and aggregate central government’s expenses where sub-national expenses is assessed by calculating aggregate root level government’s expenses along with entire national expenses. Many research report identified that in terms of expense, the ER ratio expressed fairly accurate public debt measure as well as fiscal decentralisation where to skip error of double counting root level and central government’s grants is subtracted. Following is the equation of ER. ER = (Aggregate Sub-National Government’s Expenses / Aggregate Central Government’s Expenses)
  2. Revenue Ratio (RR): the RR ratio deals with aggregate sub-national revenue and aggregate central government’s revenue. In time of root level revenue assessment, the RR is the most acceptable form of government’s decision-making processes as well as share the power with lower level organs. Assessment of the total revenue is calculated by adding aggregate amount of collected tax, social involvement and other sources of revenue. Alike, the ER ratio, the RR ratio also avoid central government’s grants. Here is the equation of RR. RR = (Aggregate Sub-National Government’s Revenue / Aggregate Central Government’s Revenue) Where, Total Revenue or Aggregate Central Government’s Revenue = (Taxes + Social Involvement + Other Sources of Revenue – Central Government’s Grants)
  3. Composite Ratio (CR): at last, the new method of assessing public debt, the CR is a ratio between aggregate sub-national government’s expenses and aggregate central government’s expenses where government’s grants are deducts from both sources of expenses. Moreover, total sub-national expenses generated by financing domestic projects where as total central government’s expenses focus on national projects, neither inter-governmental grants nor other sources of grants. Following is the simple form of CR equation, ER = (Aggregate Sub-National Government’s Expenses – Sub-National Government’s Grants / Aggregate Central Government’s Expenses – Central Government’s Grants)
Rules and Law

Byrne, Mirescu and Muller (2007) pointed out that, in the light of legislative form, rules and laws of public debt is simply define as a field of development cooperation to accessing justice, which is also treated as tool of –

  • democratic governance,
  • decrease of poverty and
  • establishment of social equality.

In simpler form, improving access towards the justice attributed with establishment of efficiency that assemble through accountability as well as flexibility to set institutes in the area of justice that covered independent courts and professional police and moreover, transparent law making entity along with prison management in accordance with the international human rights benchmarks. Allocate common people’s right to enlighten their acquired rights as well as defend property. Implementation of fighting discriminatory mechanisms in order to reduce substantial distance from territorial legal institutions by approving affordable fees and flexible bureaucratic processes like delays and backlogs and additionally, motivate comfortable socio-cultural interactions like language and norms.

Meanwhile, rules and laws of public debt is typically focus on removing common problems of social groups to access justice and raise awareness to claim rights more strongly than before. Moreover, concept of access to justice is also worked for reformation of government’s legal aids along with the legal advice institutes of respective civil society with correspondence legal literacy programmes. Another mode of implementation of access to justice is termed as conflict solving approach that considerably digress from typical official justice tools inspiring from family negotiations, community committees, applied customary law and so on. Associate disciples of the conflict approach are –

  • Balance and harmonise modern bureaucratic structures;
  • impede blind justice system and promote emergency to abolish them and
  • Replacement of formal justice system to resolve imposed justice-ruling policies

Impact of Fiscal Decentralisation

Vazquez (2011) argued that different countries conducted fiscal decentralisation implication drives from different motivations while most of them influenced by the approach of effectual public service delivery, others were influenced good governance and the external pressure of donor agencies or consideration of the better alignment than the centralisation influenced most of the contributors.

Whatever the motivation lie behind implementing fiscal decentralisation, the outcomes and impact of fiscal decentralisation has carried out a mixed consequence on the global context connecting with the socioeconomic, political aspects of the concerned countries including their economic growth, macroeconomic stability, and electoral process. The evidence from the developing countries have confirmed the remarkable progress in the economic and social development including their democratic practice and governance while the developing countries evidenced on step forward, but two-step backward shifting.

To assess the impact of fiscal decentralisation from the theoretical perspectives it would be relevant to present Oates (1968) where he mentioned that the theory of fiscal federalism concerned with functions of decentralised governments conducting their fiscal assignments adopting appropriate fiscal instruments at their local level; on the contrary, Oates (1999) made his comments ‘fiscal decentralisation is in vogue’. While both the developed and developing countries are striving for fiscal decentralisation, the wave decentralisation destabilised the Italian government so far that the movement placed a dangerous suggestion for dividing the nation into two different independent countries; at the same time, the country does not bother to centralise under the European Union (Oates, 1999).

However, Oates (1997) urged that the classical economic approach of fiscal decentralisation have stood up on the welfare thinking through the better allocation of resources for public service delivery, but there is no rational ground to think that decentralisation is an automatic remedy for the political economy that are urge to deliberate on the welfare maximisation.

Oates (2005) presented the second generation theory of fiscal decentralisation and added that previous theoretical explanation of decentralisation has strongly argued for transferring the fiscal decision making power to the local authorities, but the concurrent raise of European Union has evidenced that the countries have centralised their fiscal power to the European Central Bank rather than local fiscal authority. It raised new question if the decentralisation practice for the last four decades has gained any real progression, then why the countries of European Union had strongly driven for fiscal centralisation, does it indicate failure of decentralisation.

The literature of fiscal decentralisation presented very weak argument to justify the centralised provision within the administrative political and fiscal decentralisation, but ultimately failed to present any rational explanation of raising fiscal and monetary unions globally that ultimately pointed to disqualification of fiscal decentralisation. To explore such conceptual dilemmas, it is essential to assess the impact of fiscal decentralisation that would ultimately contribute to comment on the success and failure of fiscal decentralisation; in this context, his paper would assess the impact with the following subheads-

Fiscal Decentralisation and Poverty Eradication

Although the aspiration of decentralisation is to facilitate the local communities with adequate public services delivery effectually through local governments rather than the central provision, but there is no authentic information whether the fiscal decentralisation policies have any negative or positive impact on the poverty eradication or not (USAID: Fighting Poverty through Fiscal Decentralisation, 2006).

The literature of fiscal decentralisation has argued that in context of developing countries, the policies designed considering the poverty eradication measures with greater importance and the decentralisation movement is going ahead regardless to it clear clarification in relation to the general impact of fiscal decentralisation on poverty eradication. On the other hand, economic discipline working with the poverty alleviation has not kept any room for decentralisation that can accelerate the poverty eradication programme; simultaneously, the literature of decentralisation has failed to identify any particular linkage between poverty and fiscal decentralisation.

Marx (1955) was deeply concerned with the working class and their poverty and pointed out that the class-divided society has founded on the fatal prerogative of capitalists who conduct continuous exploitation to the working class and people that enhance the poverty in a greater extent. The mass people and working class always struggle to get a substantial wage for their livelihood, while the capitalist are eager to maximise their profit, this antagonism of interests are the main driving force to the corporate economy and resulted from the socioeconomic conditions of the bourgeois society.

Marx (1955) strongly argued that the idealistic tragedy of this age is that the corporate leaders directly stand opposition to the survival struggles of the working class where the capitalists are eager to mobilise huge quantities of wealth by paying less wage to the workers and this trend produces poverty in the society. From the long practice it has evidenced that the production relations on which the capitalist society stands is not quite simple or uniform in nature, but the dual disposition of wealth creation in the capitalist society has extremely integrated to create poverty and it is a non-stop ongoing process that ultimately bring into being of an ever-growing proletariat.

According to Marx (1955), the proletarians do not see anything except poverty and more poverty; they would unite under the leadership of communist parties and turn for revolution to break down the existing state structure and replace it with a proletariat dictatorship, thus the increasing poverty is a serious threat for the ongoing corporate world through dialectical negation of poverty.

The pioneer of modern economists Sen (1988) presented this theorem of poverty and famine emphasising on the social choice and welfare thinking and identified the roots of poverty where it has deeply rooted on the inequalities of resource distribution in the society. The poor people are not liable for their poverty; the state structure and its resource allocation system is gradually increasing the extents of poverty, in context of increasing poverty the Marxist economy identified that the exploitation of worker’s ‘surplus value’ would unite the working class for class struggle to bring proletariat dictatorship.

On the contrary, Sen (1995) accepted the sociological analysis of poverty and social change introduced by Karl Marx, but urged for rationality and social choice have great deal of opportunity to stabilise the society by eradicating poverty in state of Marxist revolution. It has been predicted that the literature of poverty has no room for decentralisation to eliminate poverty from the society; although, the ancestors of decentralisation has kept enough efforts to link up it as an element of poverty elimination.

Fiscal Decentralisation and Public Health

Levaggi and Smith (2003) pointed out that the public economics has intensely addressed about the extents of public goods and services including their financing while the public goods and services are not available in the competitive market, but provided by the state services either form local governments or central provision. The health and health care sector has identified as a most prevalent area of public service in most of the countries, although there has long debate regarding the role of market linking with the public health while national government bear the responsibility by sharing the power with the local authorities.

The economic justification of for decentralised policy of public service delivery is that the local governments being the closer with the local communities, they know better about the needs of the local communities, so their participation at the policy level throw the local government would reflect the options of the local people. Levaggi and Smith (2003) also added that the economists have urbanised an extensive literature of decentralised public health services from the theoretical approach of fiscal federalism that focuses on the most favourable local administrative level to deal power of financing and distributing of public services ensuring free flow of information local preferences, efficiency, transparency, impartiality, innovation and competition.

In context of the UK, the National Health Service has been decentralised with local preferences for both services delivery and financing, but the central provision have still large influence in the area of policy determination; on the other hand, in some European countries like Norway and Portugal are presently moving towards more and more centralisation of public health system design.

Hutchinson and LaFond (2004) argued that the recent era the decentralisation of health systems has turned as a fashion of modern development strategy to improve the recital of public health in the developing countries, but lack of monitoring and evaluation of the implementation phase and absence of proper research has turned the health system into vicious circle of poor performance. The decentralisation programme has huge scope to restructure the health system by implementing the human resources development training and capacity building approach to the hiring and firing of health care personnel by transferring the recruitment and appointment process to the local authorities rather than the central health ministry.

It is quite difficult for the centrally administered ministry to assess and monitor the quality and performance of the health care personnel; thus, it would be courageous to transfer the rights to supervise, monitoring, and rewarding of the health officials to the local authority.

On the other hand, the decentralised public health system has enough scope for rationale distribution of resources like drugs, supplies, and equipment in accordance with the local needs, the local authorities have to authorise to improve the health facilities with adequate quantities of inputs by purchasing from the own resources without interruption. As a result, the public health sector would achieve more technical and economic efficiency from both physical and financial resources through a cost effective solution and people’s participation that would untimely results health services economies of scale with potential and appreciates impacts on the public health outcomes.

Fiscal Decentralisation and Compulsory Education

Winkler and Yeo (2007) raised the question does the fiscal decentralisation could raise the quality of education, the answer to this question would generate further value to this study with great significance to the measures of expansion of basic education in the developing countries while educational decentralisation policies rampant all around the globe. It has been argued that the decentralisation would provide escalating school autonomy along with local governance that possibly will incorporate convalescing service delivery in the course of most commonly changing fiscal and political power to manage and administer educational spending.

Theoretical framework to establish the accords between the fiscal decentralisation and educational quality and its quality may not always provide positive influence on the development strategy including social progress while the degree of educational financing would be decentralised, the variation of fiscal capabilities of the local governments would engender with increased disparities on educational spending and it has long-run outcomes.

The implication of the decentralisation would decline the power of centrally controlled education ministries and transfer the controlling rights to the local authority while the prevalent education policy would malfunction and the education management would collapse with confusing direction and unfavourable effect on the overall education system. The most influential variables that would seriously affect on the education system under fiscal decentralisation are primarily the elected school committees that would uphold the views of the local communities and political elites, competence of the decentralised bodies to perform the new tasks and the extent of cooperation and support from the central education ministry to ensure good governance.

Galiani, Gertler and Schargrodsky (2004) pointed out that the well-designed implementation of fiscal decentralisation has the impending prospect to develop education quality and also basic education expansion while the core competence of fiscal is to decentralisation to support accountability and transparency of public education providing well-built encouragement for enhanced performance of the student’s accomplishment.

Accountability Framework.
Figure 2: Accountability Framework.

Gropello (2004) and Winkler and Yeo (2007) presented the Education Accountability Framework demonstrated in the above figure to identify how decentralisation would influence the accountability of compulsory basic education, it presented the way in which public goods, or services are allocated by the decentralised education system instead of centralised education system. Under this framework, people suffer from scarcity of the private market for education where they are enjoying direct relationship between customer and service provider; so, they articulate demand for education to casting votes of them for politicians who propose better educational facilities for their children.

Within the framework, the education ministry organises the education standard and policies where the schools and teachers as their service provide deliver lesson in accordance with the ministerial guideline, although, there are a number of limitations at the local level ensuring equality between the urban and rural areas. However, the systems urge for accountability at the local level where there are enough chances to disturb the accountability framework by the politicians for their unclean mandate, ambiguous legislation and mysterious implication plan by the ministry that provides confusing guidance for the schoolteachers.

Decentralisation and Social Capital

Bourdieu (1986) explored the concept of social capital based on the theoretical approach of Marxist ideology of class and he categorised the magnitude of capital into three classes as economic, cultural, and social capital in accordance with their relationship with the concerned class. The aforementioned three resources have evidenced as socially very effectual as well as their tenure would legitimise all the way through the intervention of representational capital where the concept of social capital organised to emphasis on the class conflict along with power function and the social interaction would increase the capabilities of the actors to protect their own class interest.

The social position of the actors, their setting on the economic class, cultural integrity as well as social resources are legitimised upon the assistance of symbolic capital- ‘social capital’, which turns the resource as an integral part of social struggle prolonged in the diverse social areas. In this connection Bourdieu (1986) exemplified the dilemmas of trust could be considered a part of social struggle where trust is an impending element of symbolic capital and could oppress the exercise of symbolic power along with symbolic exchange with or without social struggle.

On the other hand, Putnam (1995) conceptualised the social capital with three elements such as moral obligations and norms of the people, their social values particularly linked with trust and voluntary accord with social networks where the well-organised economic structure and strong political amalgamation are the successful consequence of the booming accretion of social capital. Putnam (1995) also added that due to declining social capital the US society has engendered with serious social crisis where the aggression of individualism has broken down the networks of trust between the citizens and the US theory of pluralism urge for evocation functionalist idea of social amalgamation during the last few decades.

The concurrent US society demands for strong network of trust surrounded by the society, families, and voluntary involvement of different religious and civic groups while the legalisation of modern societies are based on trust of power and the role of government is to generalise the process to generate social capital.

Paxton (2002) reviewed the modern democratic theories including interlamination relationship and foreign policy initiatives that expose strong accord between social capital and democracy that results dynamic associational socioeconomic infrastructure advantageous for democracy and economic emancipation. He observed rationally that the democracy and social capital have mutual effect on each other where longer community associations’ bring positive effect, but isolated associations demonstrate negative impact on democracy and social capital mobilisation.

Lowndes and Wilson (2010) criticised the social capital theories of Putnam (1995) arguing that his approach of social capital has conservatively society centred and failed to appreciate the state agencies along with the concerned political factors while the role of institutional design could contribute the governments to mobilise social capital and unavoidably it would keep prospective weight on democratic performance. Such argument has organised by observing the ‘democratic renewal programme’ at the local governments of the UK that generated a brilliant prospect of measuring the significance of institutional design aimed to boost social capital and democracy where the formation of social capital strongly depends on the progression of institutional design both at local and national level.

Mello (2010) supported the views of Paxton (2002) pointing the impact of social capital as ‘bottom-up’ and ‘top-down’ where the social capital has been illustrated enough restructure by the core influence of political institutions that urged to have collective action be the local communities, the decentralisation is the bridge that empowers the local communities to organise social capital.

Fiscal Decentralisation and Civil Society

Zürcher and Troshani (2007) argued that the performance and significance of contemporary collaboration between the civil society and local governments go across the transition route that flourished too extensive poverty and the collaboration comes from civil society that composed with various institutions like NGOs, trade unions, both the electronic and print media, chambers of commerce including other community-based associations.

By the collaboration among the civil society and local governments, the decentralised organisations would be intensified as well as steadily progress within very short period where the lobby groups are conducting their propagation for transparency and good governance at national and local level. It has long been prevailed inherent mistrust among the local government and civil societies due to lack of free flow of information, lack of necessary to coordination of public service, increasing corruption, rising tax structure, increasing hindrance to receive public service that hampered open interaction and poor accountability which civil society may not endorse as good governance.

The donor agencies has catalysed the situation towards further complication as the local governments are enormously dependent on the foreign collaboration that finance for their different projects and the donors have no coordination among their promise and execution, which seriously disturbed the sustainability of the public service delivery by the local governmental. In most of the cases, the local governments and people have lost their trust on the donor agencies as they promise to finance any project, but at the implementation stage, they break their promise, to avoid the consequential mistrust, donor agencies are more eager to involve the local civil societies in different fiscal decentralisation stage.

Jütting, Kauffmann and Wegner (2004) urged that the promising role of civil society for socioeconomic development have long been recognised by the decentralisation actors like donors and local governments, for which both actors spend enough to involve civil society in the decentralisation drive; as a result, civil societies are losing their impartial role to uphold people’s interest. Although civil societies in different countries presented a significant role with an accountable as well as participatory procedure in the poverty eradication programs, but the members of the civil societies faced tremendous non-cooperation and extreme pressure for not to endorsing corruption and unethical drives of the local governments for service delivery and implementing national development agenda.

Adablah (2003) explored the reimbursements of civil society in governance pointing that the institutions of decentralisation along with the local governments are not capable enough to take the challenge of good governance by ensuring people’s participation and organised social partners where bureaucracy and lack of physical and financial resources always destabilise the capacities grassroots involvement. The civil society organisations have a strong role to work as watchdogs of good governance without incorporating in the local decentralisation committees, it would bring better outcomes to ensure accountability, and transparency, free flow of information and people’s participation, and it would ultimately inspire local groups and NGOs for voluntary participation.

Electoral System for Fiscal Decentralisation

Guess (2010) argued that most of the time decentralisation provides quicker respond for public service delivery to the local communities according to their local needs and it facilitates institutional innovation; although, the process influenced several drawbacks, the policymakers kept their highest effort to make the sub-national governments more effectual by adopting uniformity of norms among the jurisdictions.

The consequence of fiscal decentralisation has evidenced a qualitative difference in the provision of public services delivery to their jurisdiction where many election management experts identified huge dysfunctions due to ultra-decentralised structure as well as argued for centralisation of the electoral process to ensure further effectiveness. The current electoral process has urbanised from the bottom-up from a number of local cultures that refuse to accept foremost modifications along with unfunded mandates and the process integrates the role of national and sub-national governments in the management of electoral process.

The evidence of US presidential election 2000 has risen significant dilemmas connecting to the voter registration, list safeguarding from manipulation, new voting technology introduction and ballot paper design exertions that go ahead to the modification of the electoral process by which the differences of the involvements and responsibilities of the sub-national governments would be rectified and tends to unification.

Guess (2010) also added that following the US presidential elections 2000, the voter registration and voting technology has already improved, but the election of 2008 has evidenced similar problems with new dimensions where the intergovernmental features of the troubles have scrutinised from the theoretical standpoint that put forward to the potential opportunity for upgrading the electoral process. The complexities rose from the fiscal decentralisation regarding the electoral process demanded more rigorous theory that would be enough powerful to harmonising the voter registration and voting technology and capable to guide appropriate reforms within the federal and the jurisdictions of the states.

The most decentralised electoral system of the United States has empowered the states to conduct their election process in their own ways including associated cost, but such scattered electoral system raised emergence to interfere with the process with particular federal requirement NVRA of 1993 and HAVA of 2002 and it ultimately proved the necessity of centralisation in the election process.

Political Economy of Fiscal Decentralisation

Background Political Economy of Fiscal Decentralisation

Tóth (2009) argued that the concurrent approach of fiscal decentralisation has greatly influenced the theoretical paradigms of political economy linking with legislative changes carried out by the constitutional shifts towards decentralisation and such integration of multilayer government has evidenced the shift of mainstream economics to the neoclassic features. Since early seventies, the concept of ‘new political economy’ introduced in the market that explored the assumption that the good governments are not always tend to maximising the welfare function; thus, the theoretical analysis of political economy would base on mainstream economic data rather than hypothetical belongings.

Opinion of New Political Economy.
Figure 3: – Opinion of New Political Economy.

The above diagram presented a very simple outline of new political economy with a three dimensional approach apart from the neoclassical economics, but integrate with the mainstream analysis based on intergovernmental fiscal relations connecting with individual and institutional focus in the economic and political market. The ancestors of the theory of public choice organised their explanation with the neoclassical economic tools like consumer’s behaviour analysis, marginal utility analysis, public preference, procedural individualism along with general equilibrium of the economy; at the same time, they refused to accept the hypothesis of benevolent states arguing that the political actors are mostly behave like economic actors.

As the public choice and political economy is the application of economics into political science, it scrutinise with the collective decision making process in the institutional successions arguing the utility maximising trends of the stakeholders including politicians, bureaucrats, and voters.

The political economy has greatly influenced with another agenda rather than public choice, which is pointed to ‘’New Institutional Economics’’ that moves away from the traditional theories accommodating the fundamentals of neoclassical approaches that associated with the actions of economic agents in the market. This phase of institutional economics argues that the market is an institution organised through a long process of inter exchange and communication with all other institutions of the society including the prevailed customs, legislation, and property rights with close interaction with the bureaucracy and power distribution.

The legal and institutional structure of the market provides specific opportunities to the individuals for their independent decision making interacting with their need and capabilities where choice of a particular person may not be similar to the other players. Thus, the formal political economy of fiscal decentralisation would deal with the common designation of institutions deeply concerned with human interaction through legal, political, social, and economic means, while its informal infrastructure organised based on local customs, norms, traditions, spiritual beliefs, and the prevailing codes of conduct of that society.

Why Donors Donate for Decentralisation

Koirala (2011) argue that the philosophy of donation provides the core essence that it is a benevolent action for which the donor may not take any advantage or even look ahead to getting a thanks from the beneficiary; at same time donor also do not demonstrate any interference how the recipient would use the donated fund. In the case of donation or foreign aid, the donor agencies provide funding from their taxpayer revenue; thus, they always uphold the interest of their native business communities in the recipient country rather than the socioeconomic progress of the recipient nation. As a result, donor agencies utter publicly that their motive of providing foreign aid for socioeconomic progress through democratic decentralisation, but their secret agenda is to execute commercial interest, political ties, and military influence on the recipient nation.

Thus, donation or foreign aid is a tool of developed counties that they apply upon the less developed countries to generate higher return than the commercial loans in long run; it creates level field for the commercial concerns of the donor countries to get entry in the recipient country by influencing the local legislation. On the other hand, the recipient countries go through a hard time due to lack of capital and they consider that the foreign aid would contribute to overcome their crisis and to gain economic sovereignty, although foreign aid provides some temporary solution, but the history evidenced that in long-run there is no significant economic progress.

Without enhanced dependency on the donor countries. Rather than socioeconomic progress, foreign aid turned the less developed countries dependant in an extent where they cannot lead their regular work without the consent of donor agencies, which is ultimately, evidenced a scenario of neo-colonial or imperialism.

Koirala (2011) also added that during fifties, the world evidenced the huge dialogue with the development of third world countries by using foreign aid; the capitalist and social elites of the ruling class were motivated by the approach of donor countries and welcomed foreign aid to make their economic emancipation. Nevertheless, the evidence of several decades proved that it is impossible for foreign aid to bring any success in the third world countries until the donor countries would stop interference at the policy level of recipient country and allow them to use the foreign assistance in accordance with the local needs rather than the rather than the donor’s defined way.

The relationship between the donor and recipient is always conflicting, donors always emphasis on the easy access and smooth working condition for MNCs, while the third world countries strive to provide good governance and economic emancipation; but their limited bargaining power made them bound to surrender to the donor agencies and follow their prescription.

Shifting Attributes of Foreign Aid for Decentralisation

Ahmed, Marcoux and Tierney (2010) identified that the recent global liquidity crunch has sparked new threats regarding the continuous willingness of donor how they carry on their financial aid effort during the economic hard time; obviously, they have to cut down significant level of aid expenditures. The global financial crisis has seriously affected the domestic politics of the donor countries due to collapse of financial institutions, mortgage market crush has flourished continuous job cut while the unemployment is significant reduced purchase power of the people and the government is trying to protect the situation by allocating recessionary packages and bailouts.

It is rational to cut down donation and foreign aid and divert that money to the domestic recovery, but the policymakers of donor countries do not support the stopple at foreign aid, as they consider that the spending for foreign aid would ultimately favour them to gain long-term recovery. However, the harsh reality global liquidity crunch has got smaller profit, workers fall into job cut, and the governmental income reduced from tax revenues fall, bailout and recessionary packages has failed to protect the downturn and none can predict when and how the global economy would immune from the extensive hazard of the hard times.

To encounter with the situation the developed nations moved billions of dollars from the foreign aid budget to the recessionary package of their domestic economy that seriously influenced the downsize of the aide dependant nations where the left aligned governments are affected more than the right aligned governments.

Williamson (2011) mentioned that the known intention of foreign aid is to encourage economic and human development; but the most up-to-date studies raised question regarding the capabilities of foreign aid to accomplish its notorious objectives. The extensive theoretical and pragmatic literature has recommended that the foreign aid is ineffective to gain any substantial development in the third world countries, if the donors move from their “double-edged sword” role then there is chance to gain some positive attribute. Boone (1995) argued that the models of discriminatory political regimes would be the best forecasting of the impact of foreign aid and it has proven that there is no significant boost of investment scenario or economic growth of the third world countries from the practical consideration.

At the same time, the human development indicators pointed that donations have failed to keep any contribution to eradicate poverty, but just enlarged the size and expenditure of governments in developing countries. It is also notable that the impact of foreign aid may not vary depending on the form of recipient government whether it is liberal democratic or extremely oppressive, the greater empowerment of the poor is just a propagation where only the political elites of the recipient country could be benefited from the aid programs.

Eroğlu and Yavuz (1995) explored that the direction of US foreign assistance demonstrated that it does not allocate among the poor nations on the humanitarian grounds, but it corresponds to very particular benefits linked with concurrent political issues and long-term military and economic interest. Faber (2011) mentioned that the donors always tend to allocate their aide for food aid, debt relief, legislative reformation, unproductive sectors and to support defecates of balance of payment rather than capital projects; as a result, the recipient fails to increase savings and investment that ultimately increase consumption in the economy.

Thus, the decentralisation incentives by the donor agencies has no chance to bring any practical evidence of the theoretical implication in the real life scenario, at the beginning the donors urge for reformation of local legislation supporting the decentralisation and inspire to demonstrate the good governance by using donations. At the next, they pressurise to increase the area and extent of local tax and gradually they create more pressure to withdraw subsidies from the public services and then turn to commercialisation of those public services.

Globalisation and IMF World Bank aimed to Americanisation

Goldberg and Pavcnik (2006) and Jaja (2009) stated that the concept of globalisation uses to explain the rising worldwide interdependence of people and nations. They further added that it has great impact on the international trade policy, investment flows, distribution of resources, and social relations among distant localities, cultural events and so on. However, Jaja (2009) pointed out that globalisation has completely changed the business approaches and introduced the new economy where the USA would like to maximise profits using different techniques of exploitation of the developing countries.

At the same time, the appearance of this new economic approach is embedded in the capitalist economic structure and it is in effect the universalising of capitalism (Goldberg & Pavcnik, 2006; Garrett & Rodden, 2001; Jaja, 2009); at this point of view, it has an ideological base. On the other hand, the basis of this process includes the expansion of markets, increase competition among the companies in terms of quality with price, the enhancement of private ownership, open policies with respect to international trade, the enterprise courage, free decision-making, and a legal structure (Goldberg & Pavcnik, 2006; Jaja, 2009; Jaja, 2003; Mohan & Williams, 1998). However, Mohan and Williams (1998) stated that modern globalisation has some precise characteristics, which change the structure of global economy, such as –

  • The control of international finance capital (reshape global capitalism into ‘casino capitalism’) and huge amount of ‘virtual’ money (highly mobile speculative capital); therefore, economic decision-making policy transfer from state governments to international, transnational, actors (Mohan & Williams, 1998);
  • At the same time, contemporary globalisation has transformed the commercial organisation from multinational corporations to transnational companies, which creates serious problems for the developing countries in terms of the external debt crisis, development of the local industries and so on;
  • At present, MNCs and TNCs have played vital role to enhance globalisation process and to boost investment on trade to develop the economy of industrialised countries. At the same time, these types of companies invest more on the manufacturing, communication technologies and IT sector;
  • Mohan and Williams (1998) and Mearsheime (1995) argued that present trade policy better described as intra-company transfers rather than trade among countries;
  • However, these companies focus on the service sector with special attention to increase the volume of export commodities;
  • On the other hand, the traditional relationship between trade and investment has reversed and changed the logical sequence since existing globalisation demands more investment to increase trade;
  • Nowadays, knowledge, particularly technological knowledge become main financial resource and multinational companies invest considering this issue; thus, African countries fail to attract foreign direct investment, particularly in the productive sector;
  • Most importantly, contemporary globalisation has a strong political dimension.

The concept of Americanisation in the name of globalisation has spread out all over the world and influenced the culture of the US and western to restructure local culture worldwide and to establish supremacy of American with the aim to uphold the hindrance free access of the American and European corporation in the third world markets. Americanisation and globalisation flourished tremendous opportunity western multinationals and corporate houses to explore their market in the developing market while the corporations of developing countries have not enough capabilities to competition with western multinationals (Mohan & Williams, 1998; Goldberg & Pavcnik, 2006; Jaja, 2009).

Fiscal Decentralisation and Good Governance

Fiscal decentralisation has strongly advocated for specific strategy to progress the quality of public service delivery at grassroots level, which is generally consider as one of the most significant objectives for fiscal decentralisation along with well-organised distribution channel through a transparent and accountable government at the sub-national level. The free, fair, and impartial prerequisite of public services delivery to people at the local level by safeguarding the macroeconomic strength as well as encouraging the overall economic growth and all over the world it has evidenced devolution of errands intended to infrastructural separation from the central government to the local governments.

The subsidiary principle of public finance has encouraged so many developing countries to integrate necessary reformation for fiscal decentralisation by which the public authority would dwell at the grassroots phase of political institutions competent to utilise expenditure responsibilities along with effectual management of tax resources successfully with limited financing.

The improved efficiency to managing the public funds would generate the accelerated good governance due to the increasing ownership, matching with the local condition of public service needs along with direct procedure of accountability allied with amplified effectiveness at the lower level of governments who are familiar with the needs and priorities of the local citizens. At the same time, fiscal decentralisation aligned with democratic values, while stronger democracy turns them to be more accountable and people faced concerning public service delivery that ultimately generate good governance at the local level and as a whole to the nation.

The logical ground of delivering efficiency at public service management through fiscal decentralisation is specifically concerned with elevated end user effectiveness, competition among the sub-national governments, lesser transaction overheads along with resourceful revenue expanding while the end user effectiveness communicates to the postulation that people’s choices differs within territories where homogeneous services at all the local levels would be uneconomical.

The vertical and horizontal antagonism between the central and sub-national governmental level could function as a motivation for cost-effective public service delivery while competition puts a prohibition on the opportunity of continuously raising taxes, while transaction costs possibly will decrease drastically for local services providing with local information, people’s involvement and sharper implementation.

Moreover, in the less developed countries, the larger part of the economic activities have kept aside from the taxation while sub-national governments are more effective to provide accurate information about the local tax base and would be more capable to gather more new taxpayer in their own region. Meanwhile, the fiscal decentralisation has optimistically emphasised on the democratisation, together with accountability, sharing, as well as balances among the greater variety of choices, where the sub-nation governments are accountable to its voters by providing free flow including better regional integration and the citizens have easy access to their local authorities taking into account of local people’s requirements.

On the other hand, decentralisation helps to enlarge the people’s participation and local community’s involvement in the public service delivery process where they can express their opinion and share their experiences with the local authorise more closely than the central authority and it will bring further effectiveness for good governance. At the same time, local authorities are easy communicative with the local communities to learn more about their needs although badly chosen forms of decentralisation can destroy the objective of this approach; thus, democratically elected local governance is the right direction in this regards.

Under the centralised form of government like former Soviet Union, there is also decentralisation approach with the appeal to empower local people politically and considered it as an element of strategy designed for local governance to improve their living standard and greater welfare of the society and progressively more recognising the scope of fiscal decentralisation for good governance.

Economic Growth and Decentralisation

Bodman, Heaton and Hodge (2009) identified that in the light of macroeconomic circumstances, study of fiscal decentralisation addressed that, amongst several significant variables the economic growth is ranked first. Before illustrating trade off, between the economic growth and the fiscal decentralisation, it has to acknowledge that hypothetically contribution of fiscal decentralisation is a matter of debate during resolving key economic crisis issues of the public finance namely –

  1. Distribution,
  2. Allocation and
  3. Stabilisation (Bodman et al., 2009)

On the other hand, core merits of the fiscal decentralisation are cantered on three pillars and these are –

  1. Efficient assumptions of output,
  2. Efficient and effective decision-making and
  3. Superior innovation (Bodman et al., 2009)

More specifically, influence of fiscal decentralisation on economic growth follows hierarchy as –

  • Logically, decentralisation of spending powers towards the local government has significantly boosts supply of public goods and services rather efficiently during desired output of a particular service carries local interest (Bodman et al., 2009).
  • Replacement of budgetary power attached with the sub-national governments drastically required rather effective decision making with the support of:
    • Availability of required information;
    • Involvement of few numbers of people;
    • Greater prospect of common interests and
    • Locally held decision-making powers;
  • In time of provision of the public goods, the fiscal decentralisation produces rather greater innovation as well as experimentation. Conversely, on the way of macroeconomic instability along with asymmetric redistribution of income, the fiscal decentralisation is not yet account for the social cost. Furthermore, the sub-national governments are always covered through constraints of their own instability in order to –
    • Manipulate total cyclical economic movements,
    • Best implementation of counter-cyclical policies those are logically best for domestic economic growth;

Conversely, from viewpoint of non-profitable social costs, the fiscal decentralisation attributed with –

  1. Macroeconomic instability and
  2. Disparity in income distribution (Bodman et al., 2009);

In addition, there are several hindrances faced by local governments during manoeuvring overall recurring economic activities. Scholars believe that policies aimed at responding to the recurring economic activities are better executed at the central level. In defining relationship status between economic growth and fiscal decentralisation, another key limitation is that the central government cannot enjoy budgetary power during controlling aggregate demand under highly decentralised economy (Bodman et al., 2009). Moreover, there are many scopes for wealthy members to quit from redistributive policy of the local community and thus, many policies would ultimately fail and the ignorance of the social value is another fact that does not allow production decisions of externally on their communities.

Incentive Problem in the Fiscal Decentralisation System

Lao-Araya (2002) pointed out that, under fiscal decentralisation system central government of a country has not enough strong incentives in time of passing on accountability issues for their sources of finances along with administrative framework and decisions. More specifically, type of incentive problems involved with

  1. both hard and soft budget constraints,
  2. facing regulations under both ex ante and ex post borrowings and finally,
  3. poor administrative skills with indiscipline administrative entities as well as their atmosphere (Lao-Araya, 2002).

This part of the paper has involved examining these obstacles of the decentralised incentives as following snapshot –

Hard versus Soft Budget Constraints

Comparison between these two budget constraints is principally involved in making managerial decision making in the area of fiscal discipline in order to ensure most efficient central government’s fiscal discipline management. In broader form, key tasks of soft budget constraints arise when local government requires to expand their expenditure volume without facing high costs and this circumstance would be properly execute if the central government wants to bailout them during failing to operate any financial obligation. On another hand, the hard budget constraint expresses absolutely opposite attribute where central government of a country strictly follows no bail out policy and in additionally, respective local government is responsible to performing own financial obligations.

More specifically, Lao-Araya (2002) pointed out that a central government may impose available hard budget constraints on their respective local government in terms of three forms namely,

  1. revenue,
  2. expenditure and
  3. borrowing.

Furthermore, these key fiscal policy sources are obligatorily required to regulate jointly in order to achieve a sound and sustainable fiscal platform which undoubtedly proficient to avoid any bankruptcy position of either the respective local government or the central government’s bailout policy. Alternatively, the central, government has abundant scope of controlling behaviour of the local government by offering set of conditionals to transfer funds. For more clarification, a central government has scope to transfer greater volume of per capita subsidy to their available local authorities those attributed with comparatively extensive local fiscal disciplines as well as accountability.

Concentrating on these issues, local government is structured through numerous tools of performance evaluation significantly attached with local authorities, for example, the central government may have an opportunity to imposing hard budget constrictions on the respective local government through three chief fiscal policy measurements namely,

  1. revenue,
  2. expenditures and
  3. borrowings.

Furthermore, the central government a country have lots of scope to introduce several effective laws to prohibit them to bail out debts of the respective local government, but key demerit of this programme may go under water fiscal bailouts expectations of both governmental authorities along with lending institutions of a country (Lao-Araya, 2002).

Ex Ante and Ex Post Borrowing Regulations

Deshpande and Donohue (2000) pointed out that the ex ante and the ex post borrowing regulations are most effective determinants to analyse degree of influences of fiscal decentralisation on macroeconomic stability along with presence of local borrowings and additionally, an effective tool of growing awareness how to overcome difficulties of moral hazards. Alternatively, in order to resolve socio-financial issues, many countries impose strict limits on their respective local governments during borrowings though there are several merits as well as demerits closely involved with ex ante regulations those work for limiting local governments borrowings (Deshpande & Donohue, 2000).

Moreover, international donors experienced that in the developing countries, reduction of moral hazard implicit under fiscal decentralisation is only because of imposing strict limits by the central government on their respective local borrowings (Deshpande & Donohue, 2000). On other hand, in the light of ex ante policy, limiting on local borrowings, several developing countries sometimes prohibit explicit bailouts where ex post policies force available creditors in order to accept unwanted losses whilst available local governments fail to return debt (Deshpande & Donohue, 2000).

Then again, both the ex ante and ex post regulations are minimise scope of local borrowings and additionally, in several critical situation typical fiscal decentralisation trends is also move towards excessive deficits that results harsh macroeconomic instability, for instance, low volume of local borrowings in Brazil and Argentina enforces no bailout policy. At the end of this discussion, it should be noted that these two borrowing regulations are exclusively prevent excessive local borrowings of a country, but not mutually exclusive to reinforce each other, for example, considering this issue Thailand impose both of these borrowings regulations (Deshpande & Donohue, 2000).

Improving Administrative Accountability

The World Bank (2004), reported that demand for improving administrative accountability is an effective tool that proficiently lessen risks of fiscal decentralisation those result severe macroeconomic instability where as decentralisation policies involved with promoting accountability in the area of i) politics, ii) administration and iii) economy. More specifically, political accountability attached with politicians from all of responsive as well as responsible levels of their constituents and simultaneously constituents are obliged to enlighten about their politician’s decisions and consequences (OECD, 2006; The World Bank, 2004; CIDA, 2002).

On another hand, administrative accountability involved with sound legal outlines that clearly define parameter of respective responsibilities and in additionally, legal outlines essentially required to specify

  1. detail form,
  2. contents and
  3. frequency of the financial reports along with flow of the administrative reports (GTZ & MOF, 2010; OECD, 2006; The World Bank, 2004; MLG, 2008; CIDA, 2002).

Finally, rest of accountability area the economic accountability significantly attached with the local residents who are officially responsible to donate in favour of local services where local authorities preserve the role to set some tax rates (OECD, 2006; The World Bank, 2004; CIDA, 2002). However, there is a great deal of constraints to improve political as well as economic accountability rather than establishing administrative accountability (GTZ & MOF, 2010; OECD, 2006; The World Bank, 2004; MLG, 2008; CIDA, 2002).

In detail, establishment of political and economic accountability highly demands participation of local residents along with respective politicians in the area of

  1. local politics,
  2. establishment of political awareness and
  3. campaign moral responsibility (GTZ & MOF, 2010; OECD, 2006; The World Bank, 2004; World Bank, 2003, MLG, 2008; CIDA, 2002).

Alternatively, the administrative accountability establishment as well as improvement only requires sound institutional reforms featuring establishment of plenty of rules and regulations those have to well structure for flexible practices (OECD, 2006; The World Bank, 2004; CIDA, 2002). However, typically, core secret of accountability establishment and improvement belong to several issues and these are –

  • Accuracy,
  • Available information in required time,
  • Availability of channels those have to fulfil both generic and authorised auditor’s demand by screening corruption of local authorities, for instance, in many countries local administration doesn’t require to fulfil administrative accountability and more critically, there are not yet any official central agency in order to audit, compile, consolidate and report all of fiscal data (The World Bank, 2004);

Typically, fiscal policy office and the central bank of a country jointly prepare complete local fiscal data and report to publish through IMF (International Monetary Fund) though these two entities have not has sufficient human capital as well as advantage for accelerating local fiscal data and information (GTZ & MOF, 2010; World Bank, 2003, MLG, 2008; CIDA, 2002). For this reason, most recent preliminary local fiscal information is only available internal sources and in addition, only publishes annually for central government financial statistics (OECD, 2006; The World Bank, 2004; World Bank, 2003, CIDA, 2002; MLG, 2008).

Long-Term Danger & Concurrent Dilemmas of Decentralisation

Autocracy at the Baseline of Decentralisation

Barter (2009) scrutinised the impact of decentralisation in the Southeast Asian countries specially with Indonesia and identified that the dictators of this region during and after the Cold War era had aligned with the decentralisation drives either by influencing through their greediness of getting US foreign aid, in the name of decentralisation they demonstrated higher growth rate, but greater costs. During sixties Military autocrat Sarit of Thailand, nepotistic and most corrupt dictator Marcos of Philippine, martial law administrator Ayub Khan of Pakistan and Indonesian military persecutor Suharto were the pioneer to introduce decentralisation in this region and all of these rulers were seriously corrupt and burgled huge pubic fund.

The patrons of decentralisation had engaged the most notorious rulers of the history of South Asia to implement their decentralisation agenda, none of the pioneers of decentralisation in this region was democratic, nor people faced, but these Asian autocrats were fond of getting huge foreign incentives for decentralisation. History evidenced that none of the mentioned Asian rulers had any democratic values, but they were always active to strengthen their autocracy for long run and they had taken decentralisation incentives as a means of creating local elites and bureaucrats are as a means of local support to their autocracy.

Thus, the foreign incentives for decentralisation in this region has failed to gain its ultimate objectives, but misused to develop and prolong autocracy and the people had to long struggle to rescue their nations and establishing democracy where decentralisation has no minimum contribution.

During the decentralisation drives, a network of patrons and clients played a supporting role to the Asian autocrats, although such strong support has generated remarkable economic growth and improved living standards, but the agnostic role of the governments caused serious corruption, nepotism, and undemocratic practice, degradation of natural resources and environmental hazards. As the result, the countries turned into weak states without mass people’s participation, but established a superior control of the autocrats over political power and natural resources that distorts democracy, human rights, and severe environmental damages.

The uneven impacts of democratisation has failed to establish the rule of law, hindered to develop legal institutions, although economic development indicators in measure of per capita income rose remarkably, but spread out of corruption and nepotism from grassroots level up to the top of government hampered people’s regular life in Indonesia. Although Suharto turned Indonesia as a heavenly place for foreign investment, but democracy, freedom of speech, freedom of information and fair elections were totally prohibited. The left political wave with communist ideology has mobilised people against the Suharto’s government and ensured the fall of Suharto’s four decades tenure and after the fall of Suharto the real democracy and meaningful decentralisation has flourished in Indonesia

The hazard of decentralisation under autocratic government has seriously hampered the people’s realisation towards democracy and the people of Indonesia considered democracy as an agenda of capitalism to secure free-market for unfair economic exploitation to the mass people by the economically rich, democracy is only needed for few local elites and multinationals, but mass people demand for socialism (Bhakti, 2009).

Undoubtedly the danger of decentralisation in the Asian countries have evidenced the increasing number of people’s shift from democratic values that weaken the state structure where the decentralisation model has encountered with the challenges mistrust by the people towards reformation. As a result, the conceptual framework of decentralisation presents the new types of indefinable dilemma with real-world implications at local and central level and raised question does decentralisation really mean empowering local people, or it stands for power sharing with the local elites by the central elites.

If democracy and decentralisation is interdependent through local autonomy and there is if any welfare thinking for people, why the introduction of decentralisation in the mentioned Asian countries were adopted by the autocrats of those countries, does it not confronted with the theories of state and society and faced tremendous resistance from the social organisation.

Decentralisation and Destabilising Efficiency

Prud’homme (1995) mentioned that the centralisation is always based on efficiency while the theory of fiscal federalism emphasises on the dissimilar taste and preferences of the local people at their jurisdictions that seriously destabilise the national efficiency development. Suppose a centralised system considered to spending its major budget allocation for education considering that education would generate skilled human resource while there is another option of allocating for recreation.

At the same time, from two options of education and recreation under a decentralised system, some local governments would prefer recreation, some would choice education, and the others would look to the public preference what the local communities demand. As a result, within the decentralised system, the spending in different territories would be different according to the local community’s preference and it would hamper homogeneous efficiency building at national level. The destabilising efficiency under decentralisation has demonstrated in the figure below –

Efficiency under decentralisation.
Figure 4: Efficiency under decentralisation.

Under local government “A”, the local communities demanded for recreation while people under the local government- “B” preferred for education and the decentralisation system would allocate two different things in two territories to ensure increase welfare, which is contrary to the reality of less developed countries and extremely inclined to the demand efficiency rather than supply efficiency.

For the territory of A and B, i and j indicates the per capita resource allocation for two different public service provided in the respective territories, LM represents budget constrain to deliver i and j where A and B represents the indifference curve of the respective local governments. Under the decentralisation system, the respective local governments would settle at the point ‘a’ and ‘b’ on their respective indifference curves, but the centralised system would prefer to settle at point ‘c’ up on the inferior indifference curves A’ and B’ with less public preference, but ensures the higher efficiency development at national level.

Decentralisation and Distribution of Fiscal Efficiency

Prud’homme (1995) also added that the overall assumptions and preconditions of the fiscal decentralisation do not match the real life scenario of less developed counties where the theory assumed that is only difference to taste and preference, but in real life evidence demonstrated that there are differences of income level and lifestyle, which is totally different from developed countries. Moreover, there is also dissimilarity among the territories of different local governments regarding their tax preference, tax structure, concerned regulation, and local priority for spending. The model of fiscal decentralisation also assumed that the taxpayers under the different local governments would articulate their choice and preference by exercising their voting power, which has no meaningful practice in the less developed countries due to military interference in the politics and weak electoral system.

At the same time, voters behaviour in the less developed countries are not same as developed countries, votes are sold for money and bribing can manipulates public preference. On the other hand, local electoral process differs with the national election where non-party loyal candidates are emphasised by regulation rather than political alignment of candidates, as a result local governmental elections do not carry any warning for political parties regarding public preference and turn into a vague and unrealistic formalities to select local elites and touts as public representative.

The theory of Fiscal decentralisation also assumed that the elected local representative along with their Mayor would better serve the local communities with the mindset to be re-elected for another upcoming term of election, but there is no reality for the mayors to highly satisfying the local preferences. If mayors were willing to do so, the local bureaucrats and other pubic representatives who are poorly motivated and suffered from less efficiency possibly would create hindrance to pursue public preferred agenda. In such case, the mayors have their own political affiliation to a party and they are not free to stand against his party agenda that would possibly conflict with the local preference.

Thus, the assumption on which the theory of fiscal decentralisation stands is very weak and quite unable to match the preferences of less developed countries; consequently, the fiscal decentralisation could only improve allocating efficiency rather than stable fiscal efficiency while central provision for local public services have wider prospect.

Decentralisation and Productive Efficiency

This is no indication regarding the productive efficiency within the fiscal decentralisation model, although the believers of the model argue that there is a hidden assumption that decentralisation would produce better supply to match the public service demand and the supply is always efficient. Such postulation has come into evidence from the contemplation that the private sector would be much interested to meet the local demands, the decision-making determinant is to take into account of marginal cost pricing, and the bona fide concern is to measure if the local provision would be more cost effective in relation to the national provision. As a result, it may consider that the production would always continue at the borderline, where in the following figure the LM curve represents the productive efficiency –

Productive Efficiency of Decentralisation System.
Figure 5: Productive Efficiency of Decentralisation System.

Due to shift from centralisation towards decentralisation, LM curve would move upwards or downwards and which direction it would move is a vital question. It has already considered that centralisation has failed to address the difference between ‘A’ and ‘B’, the influence of the two systems are imperative enough in terms of productive efficiency where decentralisation emphasised on allocation efficiency, but centralisation emphasised on productive efficiency, thus, decentralisation would result downwards move of the indifference curve LM. If the decentralisation implies LM curve at the position of L’M’, the previous consumption ‘a’ and ‘b’ would gain new position at ‘a’ and ‘b’ that indicates decrease of welfare for concerned both consumptions, as a result it would be considered at a glance that decentralisation has reduced productive efficiency, although there is scope for further study in this regards.

The most common logic presented in the model of fiscal decentralisation that the provision of providing local public service would strengthen economies of scale, but in real life, all the local decentralised regimes are not very self-reliant with resources, so it has to gather resources from other autonomous regimes that would deteriorate the economies of scale.

The most recent studies have demonstrated that the economies scale linking with local public services have enough short in supply, although the customary views of decentralist urged that some local public services engage economies of scale entailing with the nationwide supply, but in practice a municipal authority has to depend on others for most of the local public services. As a result, the public welfare would lose its magnitude and the economies of scale would turn into minimal level.

In addition, the central bureaucrats are far above resourceful in comparison with the local bureaucrats; as a result, the central government enjoys more enhanced economic scope by utilising talents of the efficient bureaucrats, although decentralisation shifts power to the local governments along with some bureaucrats, but they are junior and less resourceful. Assessment between the central and local bureaucrats identifies that the central bureaucrats are more qualified, more experienced esteem technocrats, get better salary, superior career opportunities and involved with technology integration, research, and development with greater diversity and decision-making power with less political intervention while the local bureaucrats almost do nothing excluding flattering the public representatives at local level.

Another crisis between fiscal decentralisation and productive efficiency would be generated from the excellence and gradual progress of private sectors all over the world while the borderlines of public and private sector are quick shifting and the PPP has generated a new dimension of amalgamation among them. Subsequently the area of public sector is gradually diminishing while decentralisation engaged to draw the border barrier between the central governmental efforts along with local public provision that ultimately reduce the public sector in the country and the role of central government with its bureaucrats would remarkably reduce (Nóbrega, 2009).

The cost of re-engineering the central and local governments would outstandingly higher due to abscond of talented people from the civil service towards the private sector, degradation of the morals of public sector employees, flexibility, and broken down network and noteworthy reduction of investment for research and development, the evidence of decentralisation in Brazil and French have supported above attributes (Nóbrega, 2009).

Decentralisation and Corruption

Wei (1999) explored that IMF and World Bank defined corruption as an abuse of state power and illegal practice of bureaucrats for private gains, on every occasion if a government office is ill-treated, the public service and its objectives would be abolished, and people would suffer from different malpractice by the state in their regular life. The global giant of decentralisation IMF and World Bank advocated in favour of corruption arguing that if corruption does not influence the policy matters, there is no harm to incorporate corruption in the unproductive public functions, and the scheme of bribery could be able to lubricating on the machinery of trade and commerce.

The perverted literature of IMF and WB also kept their highest efforts to legalise bribing pointing this demoralised act as a part of culture and gift, but they are never willing to consider exploitation and sufferings of the people generated by corruption and they nakedly supported the notion that corruption in developing countries in Asia has no negative consequences.

At any means, such demoralised explanation and advocacy of IMF and World Bank in favour of corruption and bribing may be acceptable to the unethical profit-making organisations and multinationals, but never acceptable to the conscience of the civic society.

All over the world, the modern civilisation identifies corruption as a deep sickness of the society and always be treated as a major obstacle of development while the civil societies engaged themselves to continuous fight against corruption. When the political institutions, national legislation, and law enforcement agencies in every country are working hard to eradicate corruption, IMF and World Bank’s advocacy in favour of corruption and bribing would raise question to the global role of the two organisations, does IMF and World Bank has aimed to patronising corruption and bribing.

The aggression of corruption has spread out with the doctrine of IMF and World Bank and seriously undermining talent and qualified people in the civil service appointment, unqualified candidates with less calibre are getting excellent jobs in exchange for bribing and low profiled and less skilled civil servant are getting promotion bypassing the honest and skilled employees in public sector. Such malpractice in the civil service seriously causing brain drain in the public sector, generate moral hazard and criminalise the public procurement, investment environment where local concerns and multinationals have to spend a remarkable part of GDP for bribing.

Kolstad and Fjeldstad (2006) strongly argued that the decentralisation would not be advantageous as it develops and prolong with strong accord with corruption at the local governmental regimes and the volume of corruption at the local level is far greater than the central government. Different investigation demonstrated that decentralisation go together with corruption and would involuntarily boost the overall degree of corruption at the local governmental regime that diminish both allocations and production efficiency of a nation (Prud’homme, 1995).

Thus, decentralisation would not be desirable to the mass people in terms of free, fair, and impartial economic growth and social justice while centralised corruption impact on a few people at central level, decentralised corruption destabilise the regular life of all people from centre to the grassroots level. It is essential for all nations to emphasis on the corruption reducing strategy and strengthens anti-corruption drives to reduce public fund misuse and to decrease cost of production efficiency, wasting time, but increase cost of research and development.

Although it is very difficult to assess and measure the extent of corruption; but there are enough resources to conduct study with corruption with the decentralised system where the scope of greater corruption exists at the local level rather than the national level and the bureaucrats and public representatives come into strong accord to justify their corruption. It has evidenced that by the decentralisation of decision-making power to the local governments, they are making decision in favour of their corruption and setting up unethical relationship with the local suppliers and interest groups who are disturbing the sound regular life of the people.

At the same time, the ethical standard of the national political leaders and bureaucrats are much higher than the political leaders and bureaucrats at local level, they always keep their full attention to build up the clean and honest image to the nation, which is totally absent at the local level. The increasing print and electronic Medias are always investigating sincerely keeping close look upon the national political leaders and bureaucrats while it is almost impossible for the media to cover all political leaders and bureaucrats at local level, so the decentralised local governments turn into a heavenly place for corruption.

The auditing and accounting at the central level has minimum standard and the central governments are obliged to ensure transparency and to ensure free flow of information while there is no such binding of precedence at local level thus, they enjoy enhanced opportunity to align with veteran corruption and criminalisation for local taxation and public spending. It has also evidenced that the local governments are more interested to collect informal taxation rather than formal taxation that has enhanced scope for corruption; at the same time, the local government have developed a culture of bribing in the form of gifts and donations for anything people goes to them nothing gained free without bribe money.

Lambsdorff (2001) added that the extent of corruption at the local level has enlarged at such a degree where the objectives of governmental initiatives to provide public service in exchange for taxpaying are going to break down and the negative impact of corruption on public welfare are going to destroy people’s trust to the state structure. The corruption turned the governments incapable otherwise unenthusiastic to maximise welfare at the local level, it enhanced to deform agent’s willingness to obey the contractual terms with the government and made the government bound to compromise with them otherwise they do not bother threatening the civil servant that ultimately opens the door of opportunism at the local level.

Detracting Power of Central Government

Tambulasi (2009) explored decentralisation as the “Breeding Ground” of conflicts, means of reproducing social unrest and catalyst of political violence that make the decentralist propaganda very confusing and challenge the theoretical base generated by the donor agencies which presents alarming scenario from the real life evidence and its cultural underpinnings. Conflict in the society between the oppressor and oppressed are the indispensable elements that drive the society to a new order started from the contradiction and inappropriateness of actions among the interests of the groups while their behaviours norms and values turn them to be violent to gain their collective objectives frustrating oppressor by the action of oppressed.

At the same time, decentralisation in the name of local autonomy, accountability, and the rule of law inspires the territorial conflicts, but it sometime goes to attain though violent movement rather than democracy and good governances that turn into arms conflict and civil war within the conflicting communities. Although the decentralist theoreticians kept their continuous effort for the balance of power among the central government and local governments with the aim to improving the lives of local inhabitants, but the global evidence has presented most alarming scenario that the approach of decentralisation has failed to mitigate conflict between the central and local provision.

Braathen and Hellevik (2008) mentioned that decentralisation keeps its efforts to uphold peace along with conflict management; while the mutually supporting of the central and local government is very crucial as under the decentralisation system the state devolves and allocates powers and resources by ensuring fiscal equity among local autonomous bodies where local governments are accountable to the people. The ‘peace keeping’ norms of decentralisation has failed within the propensity of African countries that turned the peace and conflict management process as a long-term arms struggle where multinational peacekeepers have to face hard time.

Green (2008) added that evidence of Uganda and other African countries has raised further debate among the political economists to identifying the relationship between decentralisation and bloody conflicts in this region where decentralisation at first instance empowered the local government, but simultaneously spread out civil war within the nations. Ugandan President Yoweri Museveni introduced massive decentralisation in 1986 that transferred huge power to the local district level along with the expansion of the numbers of districts, but it leads to serious struggles over district leadership positions to mitigating arms conflicts between local ethnic groups.

The failure of the decentralised system for conflict management expended the way to welcome UN peacekeeping troops in this region and it is not prestigious for both the government and the conflicting people to allow foreign troops in their own territory. Decentralisation in this region has destroyed national integrity and peaceful coexistence, local autonomy has manipulated the local elites to gain their narrow individual benefits in exchange for the cost of thousands of lives sacrifice, multinational forces are killing local people arguing them as terrorist, how the donor agencies dare to propagate regarding the improvement of livelihood in this are!

Sasaoka (2008) argued that in the recent era the modem world is more concerned to investigate the accord between decentralisation and conflict generation and added that although during nineties most of the developing countries have integrated decentralisation system, the growing conflicts all over the world have generated serious confusion with the consequent of implementing decentralisation. The literature of decentralisation has presented the enormous virtues of the system, but forgotten to address that conflict generation is another attribute of the decentralisation while the bloody conflicts and arms struggle simultaneously spread out in the African sub-Saharan following the introduction of decentralisation.

At the abolition of cold war era, it has come into public views that the domestic conflicts are raising in an increasing rate and the decentralised system failed to keep minimum contribution to mitigate conflicts by cheering up national harmonisation. There are a number of countries move down into conflict next to the collapse of centralised system and introduction of decentralised power practice of the state structure and the conflicts turned into either arms struggle or civil war, where the arms trading counties get a new market for their war weapons.

Thus, the arms trading countries started to patronising decentralisation as a new market entry strategy where the dynamics of the conflicts pointed to the ethnicity, religions radicalism, territorial control or establishing control over tribal groups one over another and the new system have nothing to do for conflict management and establishing peace. The evidence demonstrates that bloody local conflict, decentralisation, and arms trade have a strong and unholy alliance out of the screen that act to collapse the centralised power of the government and split out the country into different territories and fuel up the regional or religion or even cultural heritages, social castes and identities as a means of inspiring conflicts.

Brancati (2005) strongly urged that decentralisation and local autonomy is the fuelling to the fire of gaining political power by the small territorial minorities by challenging the effective central governance and in opposite the majorities engages decentralisation as a strategy breakdown the communal unity among small ethnic groups and against minorities. Although the theory strongly believed that, decentralisation is very effective to trim down the ethnic conflict and secessionist in a country taking the governments closer to the citizens as well as growing opportunities to participate at local governance, but practically the local autonomy boosts ethnic conflicts while the regional political parties directly or indirectly encourage formal separation from central governance.

Fiscal Decentralisation Devaluates Nationalism & Hampers Unification

Cornell (2002) mentioned that decentralisation urged for local autonomy where the term ‘autonomy’ comes from Greek words “Auto” means self and “Nomos” stands for law. In social science, literature autonomous indicates self-governing stage of the institutions both in social and legal contexts. In context of state of politics, autonomy indicates to the self governing territories that even so not only identifies political understanding, but also specifies the particular rights and duties awarded on the leadership belong to an unambiguous group where ethnically or religiously deeply concerned with the specific regions of the state.

The degree of power granted by decentralisation implication allows the authority to convey internal administration without any interference of the central government and the regional political autonomy is the array intended to transfer power to the group that is diverse from the overall majority of the country’s population, but majority at the local constituency for which the decentralisation has designed.

Decentralisation delivers the local autonomy at the local governments like municipal or district council where democratically elected local majority party would govern. It gives rise to a new dimension of ‘sub-nation’ within the regime of nationalism, where the sub-national identities are based on territorial borders without taking into account the internal formation ethical and religion alignment and this is the source of conflict generation.

It has evidenced that territory based decentralisation connecting with municipal or district council formed based on the geographical location that separated an ethic group or tribal community into two that the concerned communities do not desire and they may urge for unification, but the decentralised authority do not agree and create pressure to convey. As a result, sub-national conflict with the nationalists comes into evidence and the centralised nationalists are always reluctant to uphold sub-national or tribal autonomy, which could turn into civil war.

Cornell (2002) also added that the nationalist central governments all over the world are unenthusiastic to agree to the demands for sub-national autonomy for quite a few reasons. For instance, the nationalist governance fears that on gaining regional autonomy, the minority groups would be inspired to conducting secessionist or may dream for a separate state. On the other hand, by getting autonomy to a territory possibly will be supposed to conduct favouritism in opposition to the other people of that territory. Moreover, autonomy would boost the jeopardy of interference with overseas countries linked with any particular minority group or it would be quite possible that donor agencies may use them to create unrest.

If the decentralisation is not based on ethnic, religious, or ideological alignment, the relation between the central government of a country and autonomous territorial governments under that county does not have any horizontal accord with sovereign or vertical linkage among the citizens, and there are no threats of devaluing nationalism and hampering unification, otherwise there is enough risk prevailed. There is enough evidence of ethnic mobilisation in a country among the minorities in a multi-ethnic country usually leads to the growing demand for self-governance that turn into absolute secession, particularly while the minorities are permanently settled in a geographical area and the decentralisation has disturbed their traditional governance or broken their unity by local governance.

Decentralisation and Commercialisation of Public Service

Marceau (1985) argued that the decentralisation in the developing countries widely come into implication with the approach of delivering better public services to the local communities efficiently and cost effectively, but the failure of decentralisation to deliver better public service had come into views following the privatisation of public services in Sub-Saharan Africa. The nature of the local authorities generated by decentralisation in this region and their relations with central governments, predominantly the extent of autonomy granted to the local governments has provided them enough powers that by influencing with the prescription of donor agencies they derived for privatisation of public services.

Privatisation leads them to charge the people for getting public service and from time to time the local authorise have been increasing the charges that generated profit-making scenario at the local level, which could be termed as commercialisation of public service. The commercialisation of public service in this region mostly made the public service deliver worse than ever and even deteriorated its quality most unpleasant than the colonial era. The local governments at the municipals of African Sub-Saharan have integrated political administrative and fiscal decentralisation without any external interference, but they still for the most part fashioned with the colonial heritage where new patterns of public service delivery has gone forward with high extent of privatisation as well as commercialised.

Privatisations under the modem open economy pointed to the relocate possession, administration, funding, and control of public service to the private sector, privatisation indicates to sell out public assets to the individual owners supported by the local law and regulation that make the entity free from governmental control as a part of policy liberalisation (ILO: The Impact of Decentralisation and Privatisation on Municipal Services, 2001).

The literature of privatisation presents the logic that the privatisation of fundamental welfare services in a country involved with the enlargement of individual dependability for effectual sustainability without any governmental subsidy where the individual would more emphasis on his own welfare rather than the public. There are different forms of privatisation where public assets, state own enterprises are sold out partially of fully, in some aspects of privatisation the projects are funded by the public private partnership where the civil servants act as manager, and governmental purchases performed from separate entries, but procured from local private suppliers and the prospect and risk are equally shared.

Whatever the form of privatisation, private sector has only one target and that is profit maximisation, although corporate social responsibility is a propagation of private sector for legalising their unethical acts in the way of maximising profit, thus, privatisation of public service would hamper the fundamental direction of decentralisation and the local governments may turn into a business house.

Marceau (1985) added that the decentralist theoreticians at the beginning of privatisation of public services urged that it would be wise to keep the provision of water supply, transportation, communications and electricity at the hand of local governments, but public services like education and public health would be better serve if they are given at the private sector. The transfer of education and public health in the private sector has turned the public services into economic commodity where health and education considered most profits generating area and at the same time, other public services are gradually transferring to the private sector without taking public welfare into consideration.

Global Financial Crisis and Fiscal Decentralisation

Roitman (2009) explored that the global financial crisis spread out in September 2008 from the US sub-prime mortgage market has a propensity to keep serious negative impact on the fiscal decentralisation specially in the LDCs and it is an unavoidable consequence of developed countries which may share by all nations of the world due to interdependence of the financial structure. The amalgamation of badly chosen financial regulations by the Federal Reserve Bank, extreme risky investment by some financial intermediaries, and uneconomical compensation for the top executives, and collapse of the fourth biggest US investment bank Lehman Brothers has drawn the attention of world about the concern of GFC and its long-term danger.

The concurrent GFC has seriously injured the global economy and turned the world into recession from where the global economy cannot overcome for the last four years, the practical evidence of GFC is much more dangerous than the great depression of thirties. Housing market crash, collapse of banking and financial institutions, vulnerability in the stock market, fluctuating oil price increasing unemployment, and job cut including reduction of governmental spending has generated serious economic downturn and the developing countries are facing severe crisis depending on their linkage with the international financial institutions.

As the decentralisation at first instance funded by the donor agencies and GFC has already thrown the developed counties into severe crisis, the funding for local governance would be gravely hampered, thus, both central and local governments in the developing countries would be disturbed due to global financial crisis. Moreover, due to GFC, the central governments would face a hazardous fall at its revenue generation through reduction in corporate taxes, lesser import and income taxes, reduced export earning, and FDI inflow for which the central governments have to reduce its transfers to the local governments. The local governments also face similar fiscal dilemmas with less transfers to and from the local level and it would make them bound to curtail their development budget, reduce spending of them for public services, and to some extent may fail to provide some public services for which they were created by regulation.

The time is so crucial and it is difficult to predict when the world would come out from the GFC, thus for decentralised system both the central and local government would continue to face fiscal stress and tension where there is no social safety-net for distress people in the country. For the last four fiscal years the impact of GFC has prolonged, if it goes any longer, it would be essential for both and local government to rethink with the scope of social protection program both at central and local level and the central government would fund for such protection cutting development budget. It has to understand by the decentralist of less developed countries that the donors are in crisis with their own nation, and they are not in a position to funding decentralisation in third world while their own nations are in serious economic downturn.

Rodden and Wibbels (2010) investigated with the status of decentralisation in the USA under global financial crisis in 2008 and added that the economic downturn has considered that it would be conquered by the traditional pattern of fiscal tools that the county has long been practiced, but the bailout and rescue package has failed to bring any recovery. Both the state and local governments of the USA then started to cut huge public spending, thrown out large infrastructural projects, along with curtail of jobs in production and service sector including health and education and tried to move quickly to balance national budgets. At the same time, the federal government engaged to justify bulky national deficits by means of the argument of repeated Keynesian demand creation although the state governments demoralised the possible incentives through tax enhancement along with spending reduction, but Keynesian solution also failed to rescue the economic downturn.

Musgrave’s theory of economic management

The economic theory states that a public good means one that can be used by other consumers once it is produced. Another feature that is occasionally considered to be a part of the economic theory suggests that consumers are an integral part of the production and consumption process. It is obvious that such goods will either be produced in fewer quantities or will not be produced at all. Such incidents are generally found within the private sector, where profitability is the main motive.

Assumptions

In order to understand the Musgrave theory, let us presume the following:

  1. The set of merchandise which are to be freely given has been determined.
  2. The normal expense of generating each of the general population merchandise is “U” shaped.
  3. The focal government may build offices for the procurement of every open product. Thus, every office can make branch offices where proficiency needs numerous sites of preparation.
  4. All taxes are on an unadulterated profits premise thusly redistribution as expenses and exchanges between people or districts is not permitted.

These presumptions will be spelled out in the examination which takes after. Later some will be loose to see what suggestions could be drawn.

Open Goods

People in general merchandise which are to be given fulfil social needs and can’t be given on an expense basis.2 Assume, as it were, the polar instance of open goods.3 (In a few cases we utilise illustrations of open products where charges may be charged. Undoubtedly, most open products are a mix of immaculate private and unadulterated open products; i.e., profits show externalities between 0 and 100 for every penny. Enthusiasm here is just in the externalities!)

Spatial Setting

Space is of extensive criticalness to our issue. The reason, as in the private business sector, is not transport cost but the fact that products meant for the communities have an intention of profit-making. Besides, profits from open administrations may not accumulate similarly to all occupants of a locale. All the more particularly:

  1. Profits from a few administrations accumulate in the same add up to all persons inside a locale. By method for samples: The fighter who ensures the occupant of California gives the same assurance to the occupant of Maine. Police watch autos give, pretty much, uniform assurance for all occupants all around the region secured. Trucks which shower against mosquitoes are liable to spread consistently all around the district.
  2. Profits from a few administrations decrease off from the site of creation. Like for instance, a warning siren would be heard more clearly by people living in adjacent areas. On the contrary, people living at distant areas will not be able to hear the siren clearly and as such, the warning message will not be passed on to them. Similarly, crisis healing centres are effective in nearby areas and their effectiveness starts diminishing as the area expands.
  3. Profits from a few administrations have an overflow impact. Assume group A gives a set of open administrations; e.g., mosquito spreading, air assault sirens, fire assurance, etc. Its neighbour, group B gives none of these administrations. Inhabitants of B will at present profit from A’s procurement of some of these administrations: fewer mosquito chomps; a few occupants close A can hear the air attack siren; and some blaze assurance might be given—expecting the A blaze office is eager to cross group limits. This “overflow” happens whether or not the administration is given consistently all around A, mosquito showering; or with decreasing profits inside A, air sirens.
  4. Profits from a few administrations fortify one another while others don’t. As a consequence of mosquito showering, inhabitants of A get benefits. Presently, assume group B splashes. Occupants of A are given much more profits. As such, the overflow impact is connected with profits which fortify every other. Profits might not fortify one another in the accompanying overflow case. Assume Mr. John resides at the border of group A that is located at a distance of fifteen miles from the doctor’s facility. His profits from the great “crisis doctor’s facility administration” are short of what those of occupants with more focal areas. Presently group B assembles a clinic, likewise ten miles from Mr. John. Mr. John, on the other hand, is no better off, nor is anyone else in A.

These four aspects of open merchandise together with the profit rule and economies of scale represent one of the issues of spatial game plan to be beneath.

The unvarying nature of preferences and incomes

The excessive designing of community products will vary relying on dissimilarities in preferences and livelihoods of different spatial alignment of individuals. Like for instance, a faction that prefers Cadbury chocolate would not prefer biscuits. Two groups with the same tastes may need diverse measures of flame assurance if one group has a higher salary level. Thusly, with more yield this may call for a sort of bigger geographic flame area for the wealthier group. These issues will be discusses in the ensuing paragraphs.

Fundamental classification with unvarying preference and livelihood

Again, let us suppose that preferences and livelihood are consistent all around the country. Every org of the focal government needs to figure out what number of limb governments – separate locales of preparation – are e needed for its specific open great given the spatial degree of profits and the mechanical parts of supply. Think about the instance of uniform profit administrations and afterward decreasing profit administrations.

Consistent advantages all over the targeted district

Expect a city of 100 square miles in which the populace is equitably circulated; there are no contrasts in salary inside the populace, and further, an uniform interest for police assurance. Expect the interest is known. Further, assume that police insurance is an unadulterated open great inside a watched area. That is to say, the watch auto which ensures your house likewise secures mine. Along these lines, aggregate yield = x1= x2… = where n is the amount of buyers who all expend in as something to be shared. A component of yield is a number showing a specific measure of assurance spread equitably all around a police region. Subsequently, if a 102 mile area has 500 components of yield, it means that every occupant gets 500 components of yield. (We concede that it is troublesome’ to characterise units of yield-units of preparation—in operational terms. Consider that a watchman has increased his rounds around a colony from two to three; this means that the yield has increased.

The issue is to identify an ideal number of regions inside the city and give uniform police assurance. (Whether these units are free police strengths or regions is not an issue. The same kind of examination applies to both cases. It is comparable to firm furthermore plant economies.)

It is important to be sure about the significance of expenses. Aggregate expense is the ordinary expense of supplying the yield. On account of police insurance, aggregate expense will expand for one of two reasons:

  1. Given a region to be secured, say five square miles, the aggregate expense will climb with the level of security offered; i.e., with expanding yield.
  2. Total expense will additionally expand, given the level of yield for every individual, as the region served increments. The key in understanding this is in the importance of yield.

Assume an area secured three square miles and gained 400 units of security. Aggregate yield, along these lines, is 400 components and, for an unadulterated open product, every inhabitant gets 400 components of yield. The collective expense of giving this insurance is, say $85,000 annually. Presently the area is extended to 102 miles. Unless the region plan is expanded, the insurance is spread more slender and more slender and, in turn, the units of insurance accepted for every occupant go down. On the other hand, in order to measure the economy, expanding the financial backing to $170,000 (annually) might permit the same 400 units of insurance to be made available to all inhabitants inside 102 miles.

In a self-evident sense, aggregate yield has climbed despite the fact that yields for every inhabitant has stayed consistent. Apparently, with immaculate open products, yield for every inhabitant equivalents aggregate yield. Apparently, aggregate yield needs to be characterised for a specified locale. Therefore, while the relationship—all out yield rises to every individual’s offer-holds for open products such as National Guard, for non-national products it needs to be characterised as for the locale served.

For present purposes, the significant expense is the expense for every occupant. This, given our presumptions, demonstrates the duty charge every resident must pay for police insurance. The assessment bill will rely on upon the measure of administration offered and the amount of individuals who profit. Every occupant, with uniform interest, will pay in charges the aggregate expense separated by the populace. Note that more excellent populace brings down the expense for every inhabitant, anyhow not the measure of the unadulterated open administration accepted. In this way, a new family expanding on an empty part nearby obliges no more exertion from the watch auto which passes in any case, yet its vicinity does bring down the expense for every occupant.

Figure 6 below shows the variables which are accepted to influence the expense for every inhabitant. As the yield for every inhabitant expands, so does the expense for each occupant. Essentially in light of the fact that to prepare more yield for every occupant in a given region fetches all the more in aggregate expense for additional policemen, watch autos, and so onward. With populace steady, cost for every inhabitant must ascent.

Expense variables.
Figure 6: Expense variables.

Referring to the next Figure 7 below for a minute, it is evident that the Z pivot measures unit-cost/occupant. Again holding the amount of square miles overhauled (what’s more populace) steady, think about the expense to every inhabitant for every unit of insurance (C’L’D’).

Unit cost.
Figure 7: Unit cost.

The “U” form with a low point depicts the economies of scale in the customary manner; for instance, better use of gear. Referring again to Figure ‘A’, holding yield for every inhabitant steady, think about an expansion in the geographic size of the area; i.e., in square miles (and populace)—(ALB). Here a second set of 600 units of assurance are accommodated a little area, the expense for every occupant will be high. As the level of yield increments in view of a large region, certain economies of scale enter. Accordingly, requires for every inhabitant succumb to for a spell. Inevitably, requires for every inhabitant climb as diseconomies, particularly transport expenses, enter.

Organisational structure for fiscal decentralisation

The local government structure has developed under the decentralised mechanism to which the government impose responsibility on the organisations on sub-national level. However, the government has separated the departments into four levels in terms of planning and public administration and these are national, regional, district and sub-district level organizations. However, the jurisdiction of the institutes depends on the political system, and the structure of government administration, for instance, the ministries would be restructured at the national level to serve wide sector policy formulation.

In this case, the ministries of national level would also responsible for initiating and planning policies, budgeting to decentralise and monitoring and evaluating their performance and effectiveness to support and manage decentralized services; on the other hand, at the regional level, RCC responsible for coordinating, harmonising, monitoring and evaluating to recognize and respond to individual preferences. At the same time, the responsibilities of district level and sub-district level include –

  • District level: Local governments are able to build up close relationship with the local inhabitants to adopt and manage standardized national policies; however, the metropolitan, municipal and district assemblies are the supreme political administrative, and legislative authority to implement the strategies like health care, basic education, child care, public transport and so on;
  • Sub-district level: It consists of all stakeholders for example civil society institutions and the private sector including the sub metro district councils, different councils and other committees to carry out community and grassroots planning, technical and management functions on a least-cost basis.

Chapter Summary

This literature review has organised with six sub-chapters those subsequently structured with the titles as

  1. The Theoretical Framework of Fiscal Decentralisation,
  2. Fiscal Decentralisation & Public Finance,
  3. Fiscal Decentralisation and Macroeconomic Stability,
  4. Impact of Fiscal Decentralisation,
  5. Political Economy of Fiscal Decentralisation and
  6. Long-Term Danger & Concurrent Dilemmas of Decentralisation.

The first part of the literature review has explored the doctrine of decentralism defining and clarifying the elements of decentralisation, its mastermind, and driving force where the US foreign policy has a greater influence to implementing fiscal decentralisation with costs and benefits model to measure that gives better understanding to the administrative, fiscal, and political decentralisation. The second part of the literature review presented the theoretical explanation of public finance of fiscal decentralisation, it’s intergovernmental fiscal relations, role of stock exchange in the capital market, public sector employees, Wagner’s law of public sector employees, rent seeking hypothesis, social security and different and model of public sector employees which are most significant for fiscal decentralisation.

Conceptual Framework

Decentralisation

The local authorities are believed to have implemented the system connecting with the differentiating norms of administrative, fiscal, and political decentralisation. Presentation of this conceptual framework would provide the readers a better understanding of the theoretical and methodological features of decentralisation as a single concept. There is a chance of misunderstanding if the fiscal decentralisation is discussed in isolation from the other two categories of decentralisation. In the second phase, this literature would like to take into account the fact that different chains of decentralisation bring a certain dimension of change in inter-governmental balance and conflict of power.

Like for example, the political decentralisation implemented initially accelerates the bargaining power of regional leaders that plays a key role in making administrative and fiscal decentralisation as a resulting force. In the third phase, this literature would present most influential economic growth theories to assess and identify how fiscal decentralisation could contribute towards the economic development.

Conceptual Framework.
Figure 8: Conceptual Framework.

Concept and Meaning

In simple terms, decentralisation means distribution of power where the decision-making power is given to the lower levels of governance. Decentralisation is a must in cases where the area or population covered is very large and it is not possible to control it by a single office or department. There are several services that have to be executed at the rural levels and in cases where centralisation is practiced instead of decentralisation it becomes very difficult to keep a tab on the various projects/functions. Decentralisation is possible and advisable in instances where the matters to be decided are not of vital importance.

Decentralisation should be or is practiced in cases where the decisions to be taken by the lower levels of governance are of general nature (and have no implications on the other areas). It means that decentralisation does not exist alone in decision matters. Both decentralisation and centralisation are practiced for better governance.

Measurement of the Degree of Fiscal Decentralisation

As mentioned above, the degree of decentralisation depends on the nature of the decisions to be taken. Decentralisation would be possible and successful only when the decisions to be taken by the lower levels of governance are not of vital importance. Technological development also affects the degree of decentralisation. Like for example, if the communication system is advanced, it will be easy for the main authority to communicate with the lower levels. If the communication system is not up to the mark, the communication will be slow and this might affect the outcome of the proposed program. Political aspects can also influence the extent of decentralisation. Like for example, vested interests of some politicians might hinder the approval of decentralisation for any particular project. Availability of managers to implement the decentralisation process might also affect the degree of decentralisation.

Political Decentralisation

Political decentralisation is the fundamental condition of fruitful decentralisation process and it is, above all, essential in support of democratic decentralisation as it restructures the country’s democratic practice and enhances electoral process by introducing a system at the local level, which is capable of achieving and negotiating different interests and resource sharing decisions, formed with public opinion. The local governments under democratic practice may not stay alive in a space, but the authorities, rather than the local level bodies, must be confident to sustain the legitimisation along with empowerment of local governments, while the indisputable political power sharing is the major factor that is frequently misled in the political decentralisation.

The political decentralisation urges the state mechanism to transfer and relocate the utility and power to administer the state from central government to the local bodies, which would be governed by local political leaders who would be elected by the direct vote of the local citizen. Such local institutions would deal with decision making right at local level, but accountable to the central government regarding the intergovernmental transfer and effectual public service delivery to the local communities and aimed to uphold democratic values by ensuring people’s participation in different development initiatives.

The political decentralisation has come into focus with an extremely admired strategy on the road to recovery public sector competence, awareness, and legal responsibility to the people by their elected representatives, where the improved scope for people’s involvement and rights within the system has asserted to generate political stability in the country. Although socioeconomic progression is the main objectives of political decentralisation, by the system inherited with different ethnic groups, left and right political supporters along with territorial divisions those are habitually dissimilar and very disjointed with the state structures, and raises the hazard of civil variance including the risk of ethnical conflict.

Eighty percent of democratised countries in the world are suffering from such conflict and unrest, where the less developed countries are evidenced with more vulnerable to the internal conflict in relation to the developed countries, failure of political decentralisation would bring more disturbed scenario in the state structure. Thus, the policymakers and theoreticians are needed to rethink that implication of decentralisation in developed and developing countries would not be same, and necessity to integrate the measures of conflict mitigation for social progress.

Administrative Decentralisation

The administrative decentralisation refers to the administrative authority re-engineering and relocation of civil servants from the concerned ministries and conveys their administration and controlling rights to the local authorities. It also includes the process of introducing a local payroll where the local governments are capable to hire and fire their employees without any influence of the central government. The policymakers and donor agencies in different countries are continuously pressuring to integrate administrative decentralisation as a development strategy to generate efficiency of civil servants in order to ensure good governance with greater than ever transparency and legal responsibility, and further effectiveness in the invention and freedom of public services delivery at local level.

The core values of administrative decentralisation framework would be based on the following criteria –

  • The rising tendency of administrative decentralisation would be aimed to identify the appropriate measures and procedure reinvention or reengineering the procedure of administering the civil servants for better public goods production and delivery;
  • The guidance and principles for administrative decentralisation would integrate the theoretical development on the organisational behaviour, regulation of public preference, direction to the fiscal federalism along with public finance standards;
  • To strengthen the local governments in their performance by boosting transparency and accountability for both services delivery and central transfers that would increase people’s trust and dependency on the state system.
  • To break down the bureaucratic red tape and let the administration to come out from the central monopolistic control along with innovative conducts that would allow local bodies to generate better public goods and services;
  • The entire drive for administrative decentralisation would be centred to endorse the economic growth, empowering with financial powerlessness of the state, conquering obstacles of development, by encountering with the concurrent debates regarding reformation, downsizing, and reengineering the public service delivery at local level;
  • To ensure citizen’s participation in the local development initiatives that are fundamentally a strategy for rationalising the reformations spread out by administrative decentralisation;

The framework for administrative decentralisation would design keeping attention to the absorption of organisational and institutional responsibilities that the local governments implement in favour of the state to the local communities where the central governmental principle would appreciate the new framework to allocate power in pluralist manner rather than the monopolistic practice. Abolishing the traditional monopolistic administrative system, it would develop accountability and transparency in the local administration through de-concentration, devolution, delegation and democratic centralism instead of institutional monopoly and centralism.

Administrative decentralisation allows allocation of power from central government to state and local governments. Such powers include authority and public service (including finances required). There are three main kinds of administrative decentralisation:

Deconcentration

Deconcentration is considered to be the weakest type of decentralisation. It allows allocation of power among the central government departments within the urban and rural area. Lower levels of government are allowed t take decisions on non-crucial matters.

Delegation

Delegation is the most commonly used and preferred form of decentralisation. Under the provisions of this kind of decentralisation, the central government allows delegation of power to semi-government bodies for implementation of various projects. The semi-government bodies are accountable for their decisions and actions.

Devolution

In devolution, power is allocated to quasi-autonomous bodies that have corporate standing. Local governments have demarked jurisdictional boundaries within which they can take decisions.

Fiscal Decentralisation

Fiscal decentralisation is the separation of fiscal power for the central government to the local governments to independently decide the local taxes and levy to generate financial resources for the local government to covey local governmental spending from their own resources it is an integral part of political and administrative decentralisation. Fiscal decentralisation pointed to the configuration of the financial associations and correlations among central government connecting to its subordinate local government rather than traditional centrally controlled financial management.

The fiscal decentralisation process would alter the existing structure of fiscal policy by which the central government peruses the public service and development works at local level, replace it with a fiscal federalism that allocated powers to the local government to design and develop local budget, and finance them with their own resources without dependency on the centre. Fiscal decentralisation is fundamentally a theme of transferring the power from the central government to the edge of the country, the marginal local authorities; it is exactly the devolution of designing tax structure, collecting revenues, local development planning, and budget along with spending powers to the sub-national, regional, provincial, municipal and other grassroots level councils.

Due to more familiarity of the local governments with the local communities, they have the enhanced scope to know the actual needs and capabilities of the local people, and can effectually design tax structure and deliver public goods and services in effective manner than the central government.

Under the fiscal decentralisation system; the local authorities enjoy substantial power to sort out local resources, all the way through taxing they accompany with a strong tax support, while the foreign donors and developing agencies become interested to working together for poverty eradication, sanitation, education, and public health including public accountability. In practice, different stage of decentralisation correspond to the dissimilar technique of sorting out the better public service delivery process, where all three types of decentralisation have attributes that generate debate of better and worse outcomes; therefore, it is a matter of political decision of the country which would best fitted option for implication.

For technical reason it is significant to make it clear which system a country would follow to maintain smooth flow of funds to and from centre to the local governments and the mechanism by which the central government would administer its sub-national governments and ensure accountability in the grassroots level. It is not the same thing to transfers within the decentralised budget and allocation of budget central ministerial projects, transfers within the decentralised budget is a case of parliamentary approval for the funds for sub-national level while ministerial projects involved with bureaucratic processes.

The transfer under the decentralised budget is a prerogative of the sun-national or local governments while the allocation of budget under central ministerial project is a dependent variable upon the ministerial will and decisions for any fiscal year, but it is essential for the trustworthiness of decentralisation that sub-national authorities are capable of putting into practice of budgetary autonomy.

The devolution of fiscal power as well as spending errands to local governments chronologically goes ahead connecting with the separation of public services from the central governance through legislative reformation of the institutional framework aligning with democratic values are concluded by commencing expected local elections that provide the local governments to function independently.

Due to such mandate, the sub-national governments would be able to keep an imperative responsibility for poverty eradication and that would ultimately drive them engage themselves of the execution of MDG proclaimed by the United Nations by mobilising financial and physical resources from their territories. Moreover, fiscal decentralisation would make the local governments more concerned to sharing power further broadly in all regions of the state, and it has different ethnic groups to raise political harmony and stability through unified and more stabilised political system to improve the lifestyle and standards of the citizens.

Huge numbers of countries in the world are becoming ambitious with fiscal decentralisation with the aim to re-locate the spending and revenue generation function to local governments and the devolution of such responsibilities of expenditure functions and revenue sources would generate an accelerated autonomy for debt management, including tax collection, along with budget implementation. As a result, the mission of delivering public goods and services would gain a motion to comply with the standard of service delivery in accordance with the experience of the countries those already put fiscal decentralisation into practice.

The subsidiary principle of public finance urged that the functions of the public sector could be improved through integrating the diversity of culture, environmental concerns, conservation, and management of natural resources, along with involvement of local communities and social institutions in the development activities. To do so, it is essential to gather local information regarding the people’s needs constrains and prospect and it will help identify new area of revenue generation where the local authorities needed to demonstrate their highest accountability and transparency about their activities through setting local democratic tradition.

There is also evidence that high intensity of autonomy in the local level for policy matters would generate complexity and challenges and would threaten the core values of decentralisation programs for which the concept has designed and developed along with troubling the multilevel public finance system, troublesome public services delivery and upsetting macroeconomic stability of the country. Moreover, greater autonomy in the local level would disturb the fiscal discipline both in the national and sub-national level, hamper the institutional clarity and accountability, and hinder the smooth delivery of public service that would ultimately spread out all through the nation. There is also possibility while the local governments enjoy greater autonomy, they can even take large amount of foreign loans from the foreign sources and developing agencies by devaluating national interest and can commercialise the public services to meet the interest of donors.

Thus, due to pressure and prescription of donor agencies need to scrutinise by the national government to protect national interest, and not to sanctioning greater autonomy of local government national that would destroy institutional clarity and accountability, raise corruption, raise spending beyond the means, and spoils the inter-governmental transfers.

As the fiscal decentralisation comes into implication through legislative reformation, the failure of local governmental policy would create discrepancy bias, and debate for elevated costs of fiscal decentralisation, which intensify the fiscal imbalances and it would accordingly put into danger to the whole macroeconomics of the country, without socially committed leadership at local level, no fiscal decentralisation would be successful. Recklessness in debt and expenditure management, lack of political commitment for social progress and honest leadership would turn the fiscal decentralisation into an anarchy that would be ruined the future prospect and made the central government liable.

Public Finance

It is important to measure the extent to which theories of public finance fit with the concept of fiscal decentralisation and how they conflict within the intergovernmental fiscal relations in the light of public finance. The theories of public finance extensively hold opposing views with the multilevel of governments. First of all, they oppose different levels of governance at the point of revenue mobilisation along with tax structure which is already well-organised. Allocating the rights of tax administering to the local governments would have a propensity to fall down and become narrow. At the local level, the non-tax revenues like fees, rent, and royalty have very limited opportunities.

Due to very limited area to impose tax, the local governments would fail to mobilise their desired revenue targets. Due to the narrow shape of local tax base, there are also some provisions of tax exportation along with economies of scale and there is no significant method for the local governments to demonstrate effectiveness in the tax administration. On the other hand, the central government has strong tax base and overall efficiency in this regard, thus it will better serve to collect revenue under the jurisdictions of central government, and the central governmental will have the responsibility to share earned revenues with the local governments with the aim to address gaps of local revenue generation and spending.

The secondary reason of public finance to oppose different levels of governance is the spending management. While the budgets are allocated among the local governments in a balanced manner, the local government’s spending would be embarrassed with the revenue increasing capabilities of the local government that align with limited sources and urge for vertical or horizontal revenue sharing. For this reason, the most favourable size of the local governments is determined on tax competence criteria, providing the extensiveness of the tax bases, which would best fit those jurisdictions along with the readiness of central governments to transfer spending utility to the local governments.

Funding such spending would necessitate greater revenue sharing. The significant outcomes of such composition of local governmental revenues would keep a key contribution for measuring and identifying the level of fiscal autonomy enjoyed by the local governments including its expenditure management. While the local revenue enlistment would make better, local government’s control on the tax bases would be significant.

If the legislative mandate has already incorporated the provision of policy and resources, it will provide additional legitimacy over the use of the resources as well as improve the scope to administer them in accordance with their own preferences and requirements that the local leadership demands. At this context, the fiscal decentralisation possibly will produce simple delegation to the local government to turn into spending agents of the central government with partial decision making autonomy just on the procedure of utilising the public funds by ensuring institutional transparency and accountability.

The advantage and support of delegation in the expenditure management for governmental spending would boost the scope of more transparency and additional accountability for service delivery by means of free flow of information to the taxpayers of the country. Under fiscal decentralisation, the local options and people’s desires would exclusively engage into consideration providing that, restrictively of spending mandates, would reproduce the option and choice of the central government, particularly on the spending actions.

On the other hand, absence of clear-cut conditions concerned with revenue sharing will possibly generate further challenges such as, it could diminish the incentives in favour of local governments aimed to deal with shared funds resourcefully as well as deteriorate the range for synchronisation between the central and local governments. Moreover, options of expenditure functions may not correspond to the beneficiary to utilise the shared funds for meeting the public spending and it would trim down the effectiveness of the donors; it has predominantly played significant role at the horizontal level where the different beneficiary to utilise shared funds.

The tertiary reason of public finance to oppose different levels of governance is that the fiscal decentralisation has provided greater autonomy for the local governments for budget making regardless of limited power for debt issuance as well as management at the local level.

These limitations are institutional that provide several types of budgetary roles. At this context, the local governments will possibly exclude to utilising deficit-funding strategy for elongated time and as a result, the local legislatures would face stronger constraint to endorse balanced budgets rather than any deficiency. The ex-post budgetary imbalances would take place in spite of anti-deficit rations of ex-ante budget. Consequently, the economy of the country would face adverse shocks with erroneous forecasting of revenues as well as spending, and stop working to take into consideration the delegation liabilities where ex-post budgetary imbalances take place. The local governments will possibly be forced to take corrective measures to remove imbalances horizontally.

Macroeconomic Stabilities

Due to fiscal decentralisation and its impact on the independence of central bank, there are some noteworthy negative impacts on inflation, but the expenditure and revenue devolution would reduce budget deficit that ultimately bring stable macroeconomic environment. On the other hand, a large number of economists pointed out that the fiscal decentralisation has serious negative impact on the macroeconomic stability arguing that it has no statistically significant positive impact to manage price inflation, but generate macroeconomic imbalances and further complexities.

Political Economy

Fiscal decentralisation under political economy attributed with several formal models that emphasise on the following two issues –

  • improvement of preference matching and
  • Government’s accountability

Moreover, due to a framework of empirical evidence, the political model has also been known as the systematic approach of fiscal decentralisation. More particularly, this model has hands on experience to work on legislature bargaining power of buying and selling public goods. Additionally, in recent times political economy has involved with electoral economy in order to outline government’s accountability rationales.

Under political economy approach, behaviour of fiscal decentralisation merged with government’s behaviour by attaching with both national and local institutes as well as with their strategies, for instance, formation and practice of legislatures, arrangements of elections and selection of fiscal policies where traditional centralisation approach is known as benevolent of social planner. On the other hand, key complexity of political economy model is that it is an unprepared assumption of forming political uniformity, but the distinctive feature of the models includes decentralisation of costs and benefits that minimises internalise tax failure cases of a country.

Impact

Different countries conducted fiscal decentralisation implication drives from different motivations. While most of them were influenced by the approach of effectual public service delivery, others were influenced by good governance and the external pressure of donor agencies or consideration of the better alignment. Such influence was more than the manner in which centralisation influenced most of the contributors.

Whatever the motivation lies behind implementing fiscal decentralisation, the outcomes and impact of fiscal decentralisation has carried out a mixed consequence on the global context, connecting with the socioeconomic, political aspects of the concerned countries including their economic growth, macroeconomic stability, and electoral process. The evidence from the developing countries has confirmed the remarkable progress in the economic and social development including their democratic practice and governance while the developing countries evidenced one step forward, but two-step backward shifting.

To assess the impact of fiscal decentralisation from the theoretical perspectives it would be relevant to present Oates (1968) where he mentioned that the theory of fiscal federalism concerned with functions of decentralised governments conducting their fiscal assignments adopting appropriate fiscal instruments at their local level. While both the developed and developing countries are striving for fiscal decentralisation, the wave decentralisation destabilised the Italian government so far that the movement placed a dangerous suggestion for dividing the nation into two different independent countries; at the same time, the country does not bother to centralise under the European Union (Oates, 1999).

However, Oates (1997) urged that the classical economic approach of fiscal decentralisation has stood up on the welfare thinking through the better allocation of resources for public service delivery, but there is no rational ground to think that decentralisation is an automatic remedy for the political economy that are urge to deliberate on the welfare maximisation.

Oates (2005) presented the second generation theory of fiscal decentralisation and added that previous theoretical explanation of decentralisation has strongly argued for transferring the fiscal decision making power to the local authorities, but the concurrent raise of European Union has evidenced that the countries have centralised their fiscal power to the European Central Bank rather than local fiscal authority. It raised new question if the decentralisation practice for the last four decades has gained any real progression, then why the countries of European Union had strongly driven for fiscal centralisation, does it indicate failure of decentralisation.

The literature of fiscal decentralisation presented very weak argument to justify the centralised provision within the administrative political and fiscal decentralisation, but ultimately failed to present any rational explanation of raising fiscal and monetary unions globally that ultimately pointed to disqualification of fiscal decentralisation. To explore such conceptual dilemmas, it is essential to assess the impact of fiscal decentralisation that would ultimately contribute to comment on the success and failure of fiscal decentralisation; in this context, his paper would assess the impact with the following subheads-

Fiscal Decentralisation and Poverty Eradication

Although the aspiration of decentralisation is to facilitate the local communities with adequate public services delivery effectually through local governments rather than the central provision, but there is no authentic information whether the fiscal decentralisation policies have any negative or positive impact on the poverty eradication or not (USAID: Fighting Poverty through Fiscal Decentralisation, 2006).

The literature of fiscal decentralisation has argued that in context of developing countries, the policies designed considering the poverty eradication measures with greater importance and the decentralisation movement is going ahead regardless to it clear clarification in relation to the general impact of fiscal decentralisation on poverty eradication. On the other hand, economic discipline working with the poverty alleviation has not kept any room for decentralisation that can accelerate the poverty eradication programme; simultaneously, the literature of decentralisation has failed to identify any particular linkage between poverty and fiscal decentralisation.

Marx (1955) was deeply concerned with the working class and their poverty and pointed out that the class-divided society has founded on the fatal prerogative of capitalists who conduct continuous exploitation to the working class and people that enhance the poverty in a greater extent. The mass people and working class always struggle to get a substantial wage for their livelihood, while the capitalist are eager to maximise their profit, this antagonism of interests are the main driving force to the corporate economy and resulted from the socioeconomic conditions of the bourgeois society.

Marx (1955) strongly argued that the idealistic tragedy of this age is that the corporate leaders directly stand opposition to the survival struggles of the working class where the capitalists are eager to mobilise huge quantities of wealth by paying less wage to the workers and this trend produces poverty in the society. From the long practice it has evidenced that the production relations on which the capitalist society stands is not quite simple or uniform in nature, but the dual disposition of wealth creation in the capitalist society has extremely integrated to create poverty and it is a non-stop ongoing process that ultimately bring into being of an ever-growing proletariat.

According to Marx (1955), the proletarians do not see anything except poverty and more poverty; they would unite under the leadership of communist parties and turn for revolution to break down the existing state structure and replace it with a proletariat dictatorship, thus the increasing poverty is a serious threat for the ongoing corporate world through dialectical negation of poverty.

The pioneer of modern economists Sen (1988) presented this theorem of poverty and famine emphasising on the social choice and welfare thinking and identified the roots of poverty where it has deeply rooted on the inequalities of resource distribution in the society. The poor people are not liable for their poverty; the state structure and its resource allocation system is gradually increasing the extents of poverty, in context of increasing poverty the Marxist economy identified that the exploitation of worker’s ‘surplus value’ would unite the working class for class struggle to bring proletariat dictatorship.

On the contrary, Sen (1995) accepted the sociological analysis of poverty and social change introduced by Karl Marx, but urged for rationality and social choice have great deal of opportunity to stabilise the society by eradicating poverty in state of Marxist revolution. It has been predicted that the literature of poverty has no room for decentralisation to eliminate poverty from the society; although, the ancestors of decentralisation has kept enough efforts to link up it as an element of poverty elimination.

Fiscal Decentralisation and Public Health

Levaggi and Smith (2003) pointed out that the public economics has intensely addressed about the extents of public goods and services including their financing while the public goods and services are not available in the competitive market, but provided by the state services either form local governments or central provision. The health and health care sector has identified as a most prevalent area of public service in most of the countries, although there has long debate regarding the role of market linking with the public health while national government bear the responsibility by sharing the power with the local authorities.

The economic justification of for decentralised policy of public service delivery is that the local governments being the closer with the local communities, they know better about the needs of the local communities, so their participation at the policy level throw the local government would reflect the options of the local people. Levaggi and Smith (2003) also added that the economists have urbanised an extensive literature of decentralised public health services from the theoretical approach of fiscal federalism that focuses on the most favourable local administrative level to deal power of financing and distributing of public services ensuring free flow of information local preferences, efficiency, transparency, impartiality, innovation and competition.

In context of the UK, the National Health Service has been decentralised with local preferences for both services delivery and financing, but the central provision have still large influence in the area of policy determination; on the other hand, in some European countries like Norway and Portugal are presently moving towards more and more centralisation of public health system design.

Hutchinson and LaFond (2004) argued that the recent era the decentralisation of health systems has turned as a fashion of modern development strategy to improve the recital of public health in the developing countries, but lack of monitoring and evaluation of the implementation phase and absence of proper research has turned the health system into vicious circle of poor performance. The decentralisation programme has huge scope to restructure the health system by implementing the human resources development training and capacity building approach to the hiring and firing of health care personnel by transferring the recruitment and appointment process to the local authorities rather than the central health ministry.

It is quite difficult for the centrally administered ministry to assess and monitor the quality and performance of the health care personnel; thus, it would be courageous to transfer the rights to supervise, monitoring, and rewarding of the health officials to the local authority. On the other hand, the decentralised public health system has enough scope for rationale distribution of resources like drugs, supplies, and equipment in accordance with the local needs, the local authorities have to authorise to improve the health facilities with adequate quantities of inputs by purchasing from the own resources without interruption.

As a result, the public health sector would achieve more technical and economic efficiency from both physical and financial resources through a cost effective solution and people’s participation that would untimely results health services economies of scale with potential and appreciates impacts on the public health outcomes.

Fiscal Decentralisation and Compulsory Education

Winkler and Yeo (2007) raised the question does the fiscal decentralisation could raise the quality of education, the answer to this question would generate further value to this study with great significance to the measures of expansion of basic education in the developing countries while educational decentralisation policies rampant all around the globe. It has been argued that the decentralisation would provide escalating school autonomy along with local governance that possibly will incorporate convalescing service delivery in the course of most commonly changing fiscal and political power to manage and administer educational spending.

Theoretical framework to establish the accords between the fiscal decentralisation and educational quality and its quality may not always provide positive influence on the development strategy including social progress while the degree of educational financing would be decentralised, the variation of fiscal capabilities of the local governments would engender with increased disparities on educational spending and it has long-run outcomes. The implication of the decentralisation would decline the power of centrally controlled education ministries and transfer the controlling rights to the local authority while the prevalent education policy would malfunction and the education management would collapse with confusing direction and unfavourable effect on the overall education system.

The most influential variables that would seriously affect on the education system under fiscal decentralisation are primarily the elected school committees that would uphold the views of the local communities and political elites, competence of the decentralised bodies to perform the new tasks and the extent of cooperation and support from the central education ministry to ensure good governance.

Galiani, Gertler and Schargrodsky (2004) pointed out that the well-designed implementation of fiscal decentralisation has the impending prospect to develop education quality and also basic education expansion while the core competence of fiscal is to decentralisation to support accountability and transparency of public education providing well-built encouragement for enhanced performance of the student’s accomplishment.

Gropello (2004) and Winkler and Yeo (2007) presented the Education Accountability Framework demonstrated in the above figure to identify how decentralisation would influence the accountability of compulsory basic education, it presented the way in which public goods, or services are allocated by the decentralised education system instead of centralised education system. Under this framework, people suffer from scarcity of the private market for education where they are enjoying direct relationship between customer and service provider; so, they articulate demand for education to casting votes of them for politicians who propose better educational facilities for their children.

Within the framework, the education ministry organises the education standard and policies where the schools and teachers as their service provide deliver lesson in accordance with the ministerial guideline, although, there are a number of limitations at the local level ensuring equality between the urban and rural areas. However, the systems urge for accountability at the local level where there are enough chances to disturb the accountability framework by the politicians for their unclean mandate, ambiguous legislation and mysterious implication plan by the ministry that provides confusing guidance for the schoolteachers.

At the same time, the centralised provision of basics education in the developing countries may suffer from the limitation of free flow of information to confirm the accountability of the schools as the institutes fail to maintain the standards of education directed by the ministry while the ministry may not succeed in adopting appropriate scrutiny with the legislative objectives. Moreover, the elected political leaders have serious lacking with the goals of education policy who are more interested to pollute the entire process with election mechanism rather than the real achievement of educational expansion and development while the system has not integrated any transparent process for parent’s feedback that may touch the elected representatives.

Decentralisation and Social Capital

Bourdieu (1986) explored the concept of social capital based on the theoretical approach of Marxist ideology of class and he categorised the magnitude of capital into three classes as economic, cultural, and social capital in accordance with their relationship with the concerned class. The aforementioned three resources have evidenced as socially very effectual as well as their tenure would legitimise all the way through the intervention of representational capital where the concept of social capital organised to emphasis on the class conflict along with power function and the social interaction would increase the capabilities of the actors to protect their own class interest.

The social position of the actors, their setting on the economic class, cultural integrity as well as social resources are legitimised upon the assistance of symbolic capital- ‘social capital’, which turns the resource as an integral part of social struggle prolonged in the diverse social areas. In this connection Bourdieu (1986) and Arrow (1963) exemplified the dilemmas of trust could be considered a part of social struggle where trust is an impending element of symbolic capital and could oppress the exercise of symbolic power along with symbolic exchange with or without social struggle.

On the other hand, Putnam (1995) conceptualised the social capital with three elements such as moral obligations and norms of the people, their social values particularly linked with trust and voluntary accord with social networks where the well-organised economic structure and strong political amalgamation are the successful consequence of the booming accretion of social capital. Putnam (1995) also added that due to declining social capital the US society has engendered with serious social crisis where the aggression of individualism has broken down the networks of trust between the citizens and the US theory of pluralism urge for evocation functionalist idea of social amalgamation during the last few decades.

The concurrent US society demands for strong network of trust surrounded by the society, families, and voluntary involvement of different religious and civic groups while the legalisation of modern societies are based on trust of power and the role of government is to generalise the process to generate social capital.

Paxton (2002) reviewed the modern democratic theories including interlamination relationship and foreign policy initiatives that expose strong accord between social capital and democracy that results dynamic associational socioeconomic infrastructure advantageous for democracy and economic emancipation. He observed rationally that the democracy and social capital have mutual effect on each other where longer community associations’ bring positive effect, but isolated associations demonstrate negative impact on democracy and social capital mobilisation. Lowndes and Wilson (2010) criticised the social capital theories of Putnam (1995) arguing that his approach of social capital has conservatively society centred and failed to appreciate the state agencies along with the concerned political factors while the role of institutional design could contribute the governments to mobilise social capital and unavoidably it would keep prospective weight on democratic performance.

Such argument has organised by observing the ‘democratic renewal programme’ at the local governments of the UK that generated a brilliant prospect of measuring the significance of institutional design aimed to boost social capital and democracy where the formation of social capital strongly depends on the progression of institutional design both at local and national level. Mello (2010) supported the views of Paxton (2002) pointing the impact of social capital as ‘bottom-up’ and ‘top-down’ where the social capital has been illustrated enough restructure by the core influence of political institutions that urged to have collective action be the local communities, the decentralisation is the bridge that empowers the local communities to organise social capital.

Fiscal Decentralisation and Civil Society

Zürcher and Troshani (2007) argued that the performance and significance of contemporary collaboration between the civil society and local governments go across the transition route that flourished too extensive poverty and the collaboration comes from civil society that composed with various institutions like NGOs, trade unions, both the electronic and print media, chambers of commerce including other community-based associations. By the collaboration among the civil society and local governments, the decentralised organisations would be intensified as well as steadily progress within very short period where the lobby groups are conducting their propagation for transparency and good governance at national and local level.

It has long been prevailed inherent mistrust among the local government and civil societies due to lack of free flow of information, lack of necessary to coordination of public service, increasing corruption, rising tax structure, increasing hindrance to receive public service that hampered open interaction and poor accountability which civil society may not endorse as good governance. The donor agencies has catalysed the situation towards further complication as the local governments are enormously dependent on the foreign collaboration that finance for their different projects and the donors have no coordination among their promise and execution, which seriously disturbed the sustainability of the public service delivery by the local governmental.

In most of the cases, the local governments and people have lost their trust on the donor agencies as they promise to finance any project, but at the implementation stage, they break their promise, to avoid the consequential mistrust, donor agencies are more eager to involve the local civil societies in different fiscal decentralisation stage.

Jütting et al. (2004) urged that the promising role of civil society for socioeconomic development have long been recognised by the decentralisation actors like donors and local governments, for which both actors spend enough to involve civil society in the decentralisation drive; as a result, civil societies are losing their impartial role to uphold people’s interest. Although civil societies in different countries presented a significant role with an accountable as well as participatory procedure in the poverty eradication programs, but the members of the civil societies faced tremendous non-cooperation and extreme pressure for not to endorsing corruption and unethical drives of the local governments for service delivery and implementing national development agenda.

Adablah (2003) explored the reimbursements of civil society in governance pointing that the institutions of decentralisation along with the local governments are not capable enough to take the challenge of good governance by ensuring people’s participation and organised social partners where bureaucracy and lack of physical and financial resources always destabilise the capacities grassroots involvement. The civil society organisations have a strong role to work as watchdogs of good governance without incorporating in the local decentralisation committees, it would bring better outcomes to ensure accountability, and transparency, free flow of information and people’s participation, and it would ultimately inspire local groups and NGOs for voluntary participation.

Electoral System for Fiscal Decentralisation

Guess (2010) argued that most of the time decentralisation provides quicker respond for public service delivery to the local communities according to their local needs and it facilitates institutional innovation; although, the process has several drawbacks, the policymakers kept their highest effort to make the sub-national governments more effectual by adopting uniformity of norms among the jurisdictions.

The consequence of fiscal decentralisation has evidenced a qualitative difference in the provision of public services delivery to their jurisdiction where many election management experts identified huge dysfunctions due to ultra-decentralised structure as well as argued for centralisation of the electoral process to ensure further effectiveness. The current electoral process has urbanised from the bottom-up from a number of local cultures that refuse to accept foremost modifications along with unfunded mandates and the process integrates the role of national and sub-national governments in the management of electoral process.

The evidence of US presidential election 2000 has risen significant dilemmas connecting to the voter registration, list safeguarding from manipulation, new voting technology introduction and ballot paper design exertions that go ahead to the modification of the electoral process by which the differences of the involvements and responsibilities of the sub-national governments would be rectified and tends to unification.

Guess (2010) also added that following the US presidential elections 2000, the voter registration and voting technology has already improved, but the election of 2008 has evidenced similar problems with new dimensions where the intergovernmental features of the troubles have scrutinised from the theoretical standpoint that put forward to the potential opportunity for upgrading the electoral process. The complexities rose from the fiscal decentralisation regarding the electoral process demanded more rigorous theory that would be enough powerful to harmonising the voter registration and voting technology and capable to guide appropriate reforms within the federal and the jurisdictions of the states.

The most decentralised electoral system of the United States has empowered the states to conduct their election process in their own ways including associated cost, but such scattered electoral system raised emergence to interfere with the process with particular federal requirement NVRA of 1993 and HAVA of 2002 and it ultimately proved the necessity of centralisation in the election process.

Benefits of fiscal decentralisation include increased income, improved standard of living, decreased mortality rate, and growth of civil society. It may be noticed that likewise the topic, the benefits are also of political and economic nature. Besides the problems, there are certain problems or disadvantages associated with fiscal decentralisation such as, allocation of funds, distribution and macroeconomic effects.

In order to have a benefitting fiscal decentralisation system, the government of Ghana needs to ensure that the guidelines are properly executed and followed. The decentralisation process should be carried out up to the lowest level of governance and a sense of competence should be nurtured among all the levels. In order to avoid any conflicts, clear demarcation of jurisdiction should be done and it should be made mandatory for all local governments to follow such boundaries. All the levels of governance should be allowed equal opportunities of development by way of equal financial aids and grants.

Then, it is up to the competence of the respective local governments to utilise the funds in an appropriate manner for the welfare of the community. Both administrative and financial decentralisation should be followed in order to allow decision-making for all levels of governance. A feasible tax structure should be formulated so that the people are not pinched while paying their taxes on time.

Benefits

Fiscal decentralisation, if implemented appropriately, can have great positive impact on the economy of a nation. As such, it is necessary to understand the manner in which fiscal decentralisation should be implemented so that the expected results are achieved. Among the various benefits of fiscal decentralisation, following are some of the major ones that affect the community directly.

Increased income

As a result of fiscal decentralisation, more opportunities would be available for people to earn their livelihood that will increase their income.

Decreased mortality

Mortality rates are higher in countries where there are less public facilities pertaining to health and general hygiene. Fiscal decentralisation allows local governments to undertake projects of social welfare, including healthcare facilities. When people have such facilities, the death rate ought to decrease substantially.

Improved standard of living

In addition to various other objectives, fiscal decentralisation also aims at improving the standard of living of people. As a result of increased income, the standard of living of people increases.

Growth of civil society

Fiscal decentralisation facilitates local governments to undertake projects of social welfare. Since such projects are related to the society, its participation is also sought. As a result of such participation, people come into contact with each other and work towards mutually beneficial projects. This gives rise to growth of civil society.

Increased literacy

As programmes under fiscal decentralisation also include imparting education to children, it becomes obvious that the literacy level increases in areas where such programmes are undertaken.

Problems

Besides the advantages that are expected from fiscal decentralisation, there are certain disadvantages that, if not addressed properly, can be harmful and prove to be a hurdle to the successful implementation of the programme. Such unattended disadvantages can ruin the political and economic structure of a nation. Some major disadvantages are mentioned below:

Allocation

As opposed to the suppositions made in the study of the advantages, the financial arrangement tasks performed by a decentralised local office influence the people who are not within the limits of a particular authority. However in the event that the supposed outer elements are inescapable, the assignment issues constitute rather a certain outcome of the presence of some nearby public property, in which its proficient generation and supply is certainly at the middle of the road or national level.

Distribution

As per a generally acknowledged assumption, the distribution capacity ought not to be liable to decentralisation. This does not comprise of a clear position, since the fundamental contentions for decentralisation, especially a stringent introduction towards the individual inclination and a high level of precision of open arrangement and its belongings are substantially legitimate in the conveyance circle than in relation to whatever available strategy. Actually, the residents of different groups may articulate an alternate assumption about the earnings redistribution agendas and most likely the people living in a little locale are significantly more intrigued by the financial circumstance of their kindred subjects than those living in a state where such projects are outlined from the focal level.

Recommendations

Decentralised functions and competencies

The cornerstone of any decentralisation plan is the determination of the financial arrangement skills of essentially non-incorporated quality. Obviously, in an economy there is corresponding reliance among all variables and, in this manner, it may be hard to discover a financial measure inside a solitary decentralised local office which creates no impact past the region of such ward; under this truly prohibitive theory there would be present no further preferences for decentralisation.

Uniformity between inter-local and inter-regional income

Actually when the balance in inter-local (or inter-regional) earning for every occupant is viewed as an essential perspective in the determination of assessments of a decentralized nature and the determination of locales, the dissemination of the tax compilation may, for the most part, include a high disparity level.

Globalisation of unavoidable external effects

It is not possible to avert the effects of fiscal decentralisation further than the area of authority. As such it becomes imperative to put into practice certain methods that might integrate the external impact.

Determination of jurisdiction

In numerous nations, the substandard level purviews are resolved heretofore and most likely –or practically– may not be changed. All things considered, monetary decentralisation must be focused around this current structure. In different nations, maybe the current locales might be rebuilt, potentially through the division or merger of the diverse wards. Yet the colossal expense of such a change is not immaterial. On the premise of experience, any ward rebuilding presupposes vital payments and optional instalments to overcome political safety. On the off chance that rebuilding is conceivable, it would be fitting to comply with the certain fundamental rules.

Decentralised financing system

The execution of capacities and the determination of costs inside a decentralised framework end up undeniably futile if the local governments don’t depend on the analogous monetary sources. There absolutely exist distinctive conceivable outcomes of territorial and local governments’ funding, none of which is absolved from issues.

Appropriate tax regime

Within a system where fiscal decentralisation is spread up to the lowest level of governance, the tax regime can be decided based on separate taxes, distribution, or levy. If a tax regime of separate taxes is followed, all levels of governance should be allowed to determine their own taxation structure. In case of tax distribution, two or more levels of governance share the collection of taxes. A system where levy of surcharge is followed, the central government is authorised to fix and collect the tax structure and the local governments are allowed to levy surcharges on various products and services.

Research Methodology

Introduction

This chapter aims at describing the methodology followed during the progress of the research. It covers the research design, research approach, primary and secondary data, interviews, samples, data analysis process, questionnaire design, ethical considerations, target population, study area, and the limitations of the study.

Study Area

The study was conducted in various regions of Africa like the Western, Eastern, Northern, Central, Greater Accra, Volta, Ashanti, Brong Ahafo, Upper East, and Upper West. The following map depicts the location of all these regions:

Various regions of Ghana where the study was conducted.
Figure: Various regions of Ghana where the study was conducted.

Research Design

The content of this study pertains to fiscal decentralisation and its impact on the economic development in Ghana. Since the topic is of grave concern, a thorough research was conducted by reviewing scholarly articles, journals and other literature. A survey was also conducted that included a questionnaire covering a vast area of the given topic. The main motive of this chapter is to lay down the research methodology adopted for the study and to understand the organisation of the paper.

At the same time, in order to analyse the understanding and effectiveness of fiscal decentralisation in Ghana, this chapter would provide clear idea about the data sources and consider the viewpoints of different scholars who provided different research methods to get proper outcomes from investigation. However, the author of this thesis would follow six key steps of Malhotra: problem statement, development of an approach to the problem, research design formulation, data collection, data analysis, and report presentation.

Once the topic was decided, a problem statement was formulated and objectives and scope of the study were determined. In pursuance of the objectives, a thorough research (literature review) was conducted that included the critical aspects of fiscal decentralisation and ways to improve the present scenario. In order to further strengthen the study and to ascertain validity, a field survey was also conducted that comprised of professional interviews and a questionnaire. Finally, the obtained data was analysed and recommendations were made. The following flow chart depicts the research design that was followed:

Research Design.
Figure 9: Research Design.

Target population

The targeted audience was from all genders, age groups, regions, education level, and religions. The study for the research was conducted in different regions of Africa such as the Western, Eastern, Northern, Central, Greater Accra, Volta, Ashanti, Brong Ahafo, Upper East, and Upper West. The maximum number of respondents was from the Brong Ahafo region and the minimum were from the Upper East region.

The effect of fiscal decentralisation can be judged in a better manner by knowing the experiences of the common people, rather than the policy makers. It is quite possible that the policy makers would not furnish the real picture in order to save their backs. So, the researcher chose to include the common people from all walks of life, gender, age, and religion. Such population was selected from all the three ecological zones of Ghana namely, the northern belt, middle belt and southern belt. People of these three belts have different ecology, culture and linguistic attributes. Difference in culture means difference in mindsets of people and so their perceptions about fiscal decentralisation would also be different.

Procedure for sample selection

Ghana is a country with a substantial area. Since fiscal decentralisation programme is not meant for any specific group of people, the researcher selected respondents from all walks of life. Both males and females were taken into consideration. People having different educational qualifications were also considered. However, it is important to note that even though a substantial part of the interviewees was from urban places, a notable part of the surveying population were from rural and semi-urban places.

Though the study was targeted at a larger audience, some respondents (those who were employed) did not turn up out of fear of their jobs. The final figure was 1880 but again, four respondents did not provide the answers to the complete questionnaire and so, a total of 1876 respondents were selected for the pilot project. Ninety nine questions with six different segments – personal introduction, degree of fiscal decentralisation, democratic practice and good governance, measures of economic governance and indicators, corporate governance under fiscal decentralisation, and socio-economic development indicators – were formulated for the questionnaire. This mass sample will also ascertain whether or to what extent good governance has been ensured in perspective of global benchmarks.

Since the effect of fiscal decentralisation is experienced by people from all over nation, the study included people from all the three ecological zones of Ghana. The northern zone consists of the Upper West, Upper East, and the Northern regions. The middle zone consists of the Brong Ahafo, Ashanti, Western, Central, Eastern, and Volta (some areas) regions. The southern zone consists of the Greater Accra, Central, and Volta (the remaining areas) regions. This division has been made considering various aspects such as their ecology, culture, language, and vegetation. It became pertinent to include people from all these areas in order to have a general perception about fiscal decentralisation and its effect on local economic development.

The respondents were selected from different regions and the concentration was as mentioned in the following table:

Procedure for sample selection

As is evident from the table, Brong Ahafo had the highest percentage of respondents, followed by the Western, Ashanti, and Northern regions. The Northern Region of Ghana witnessed substantial inter-ethnic conflicts related to the local decentralisation structure of administration and tribal norms. The incidence of widespread violence and loss of hundreds of lives during these conflicts was interpreted as a civil war by the international media. The fiscal decentralisation program has started to be executed socially but if the political aspect is considered, it has certain barriers at the local and national levels.

Research Instruments

The information required for the study was collected from both primary and secondary data sources. The questions were both open-ended and closed. This option allowed the respondents to first give a thought to the questions and then reply. As a result, the data obtained was quite accurate. There was no bias as well based on any demographical aspects. The respondents were also assured of ethical consideration while dealing with the data.

Primary research

Researches based on different subjects can have different methodologies but they indifferently have to be based on some data. There are two kinds of data: primary and secondary. Gathering data alone does not serve any purpose unless it is analysed appropriately. There have been different views of scholars about the significance of primary and secondary data. Renowned researchers like Saunders, Thornhill and Lewis (2006), Malhotra (2009), and Zikmund (2006, p.71) described the importance of primary data to get fruitful outcomes by arguing that primary data is gathered specifically to discuss the specific problems addressed in the research questions.

On the other hand, Malhotra (2009) further addressed the fact that primary data collection process is really a lengthy process while it is not possible to collect such data using easy process; moreover, some dissertations demand large sample, which takes more time. As a result, the researcher of this dissertation determined different methods to collect primary data to get proper results related to the factors affecting the concept of fiscal decentralisation and local economic development in Ghana, role of the local governments and central government of Ghana, revenues and funding arrangements, implementation plans, budgets and so on.

Interviews

The best way to understand the effectiveness of government policies and programs is to ask people (field survey) who are supposed to be the recipients of the potential benefits. As field survey is the most effective method of data collection, the researcher considered face-to-face interviewing method in order to collect data and questionnaire was used to get answers instantly from the respondents on the effectiveness of fiscal decentralisation and local economic development. The researcher had used such procedure because the respondents have various educational backgrounds that need specific guidance for the convenience; in addition, questionnaire avoided open-ended questions to investigate the impact of fiscal decentralisation in Ghana.

Secondary data

Cohen, Manion and Morrison (2007) stated that such data are authentic, well processed and collected for some purpose other than the problem at hand. The following figures represent the methods of secondary data collection –

Classification of published secondary sources.
Figure 10: Classification of published secondary sources.
Categorisation of computerised databases.
Figure 11: – Categorisation of computerised databases.

However, this dissertation has used many articles from the Manchester School Journal, American Sociological Review, Journal of Economic Literature, The World Bank Research Observer, European Journal of Political Economy, Journal of Democracy, JOAAG, The Canadian Journal of Economics, Journal of Public Economics, Nigerian Business and Social Review, Review of African Political Economy, International Tax and Public Finance, and so on. At the same time, this dissertation also focused on the report of many organisations, such as, Organisation for Economic Co-operation and Development, World Bank, Ministry of Finance and Economic Planning, World Trade Organisation, German Technical Co-Operation, United States Agency for International Development, International Monetary Fund and so on.

Research Approach

Review of literature needs lengthy discussions and as such, a descriptive case study approach was adopted for second (Review of literature) and fifth (Discussions) chapters. Case study approach appeared the most suitable to meet the objectives as it involved the processes and techniques of exploration derived from intensive interviewing. The subject matter, “fiscal decentralisation and the development of local government in Ghana”, demands to consider the case of Ghana for further progression in the research field. At the same time, this paper also utilised quantitative research approach in order to quantify data and as such, considering the advantages of quantitative research, the questionnaire consisted of close-ended and structured questions. Following are significant differences in qualitative and quantitative research methods:

Sample

The samples for this study were selected purposively from the general public, who were not involved in the decentralisation process. This was done in order to avoid any bias in the gathered information.

To gather instant primary data, this dissertation covered many districts in Ghana to interview, for instance, 240 respondents were from BEREKUM, 199 respondents were from ASH AKIM SOUTH and WA MUNICIPAL and 110 interviewees from MUN accordingly; in addition, there were few respondents from ABLEKUMA (12), ABLEKUMA SOUTH (44), ACCRA (36), ASANTE AKYEM (36) and LEGON (5). The survey has been conducted amongst 1880 respondents in total throughout the country to find out the real picture of the fiscal decentralisation and its impact within the national arena.

Data Analysis process

It is significant to note that it was hard enough for the researcher to distribute the survey questions to the prospective respondents, the collected data is scrutinised and converted into percentage with excessive care and cautiousness to ensure high-level of accuracy. Most importantly, it is notable that survey reports will be edited. Some people from the respondent groups were not enough experienced and well-informed, it was essential for the researcher to put more emphasis on the responses that were coming out from well- informed and expert interviewees. It is imperative to state that the results obtained from the conducted survey for each of the questions were thoroughly discussed, analysed, and graphically represented by using PSPP.

Questionnaire Design

According to Saunders et al. (2006), interview is one of the most difficult tasks because it has no specific format. There is a possibility of interviews going to any length and direction. It is not necessary that interviews based on open ended questions maintain discussion on the given topic. However, the next figure represents most important issues to formulate a questionnaire-

The questionnaire design process.
Figure 12: The questionnaire design process.

Reliability & Validity of Interviews

It is crucial to assess the facts that motivated to prefer the interview and data collection from the private and public service, households, students and unemployed including operational employees is that the author believes that their involvement with the fiscal decentralisation would provide appropriate sense to the response from real life experience. Rather than the policymakers, the assessment of the community members are more reliable to identify the success of fiscal decentralisation in Ghana and would provide clear vision on the fiscal autonomy concept, difficulties of implication, necessary amendments, and how to bring successful outcomes.

Ethical Issue

The participants were assured of complete ethical consideration while dealing with the privacy aspect of the provided information. As a standard norm of qualitative research, this dissertation stressed its passionate attention on two ethical issues; representation of truth as well as confidentiality of the respondent group (Resnik, 2011). While the truth alignment assisted in avoiding any bias, confidentiality strengthened freedom of expression by the respondents regarding the ongoing process of fiscal decentralisation in Ghana.

Critical Appraisal

By way of critical appraisal, a researcher can understand the research methods adopted by previous researchers in the same area and how successful they were in achieving their objectives. By comparing the previous research processes and outcomes, the present researcher would be able to identify the best research method to be adopted. With objectives to identify an effectual way of research, critical appraisal would classify and accumulate information about the previous research in the same field, although all those would not be valid or appropriate to adopt at this stage of the present research.

The traditional narrative approach of methodological literature does not typically pursue standardised process, the decision to take account of particular articles or to leave out them is totally dependent on the author’s inspection, thus such liberty of the researcher without any systematic framework could raise question on the methodological quality of the research. On the other hand, while there is absence of systematic search for literature, there is enough chance to drop out very important studies or involve some literature of inferior quality, thus, it is essential to validate the research with critical appraisal.

Critical appraisal is an avenue for quantitative research that logically investigative research authentication to measure the appropriateness of the research process, strength, and validity of the outcomes, its relevance, applicability and adoption to the present research or to support the decision making for any further upcoming research in the same topic area. For most of the scientific and social science research of the concurrent experts and theoreticians urged to emphasis on critical appraisal arguing it as a vital tool for evidence-based consideration of previous research in the similar area, which has take account of the procedure of systematic verdict, suitable measure and disciplined action that enhance cooperation for further research.

Critical appraisal endows with the prospect to the researcher to make sense on the preceding research of similar area that assist to make out the most noteworthy gaps among those and the present research and prolonged practice. Thus, such systematic reviews of previous research or critical appraisal are widely adopted in the contemporary research like a dynamic methodology aimed to attain a reasonable study on brief snapshot of the prior research and offer the reality and validity of the research objectives, procedure, and sample size including the outcomes appraised with standard of research quality.

Thus, in this methodological ground of quantitative research, the author of this thesis has aimed to conduct a critical appraisal on the structure of public finance, centralised and decentralised fiscal tools, and economic development trend of Ghana to finding if there is any positive relation among the present and previous research that will help to study design and avoid bias. A set of critical appraisal is listed in the table below:

Author/ Authors Article Name Quantitative Approach Clearly Sample Size Findings
GTZ & MOF 2010, Study to Review MMDA Development Planning, Budgeting, MTEF and Capital Budgeting Processes No quantitative approach has integrated here, problem area addressed with analytical views without any hypothesis, no research question, no questionnaire raised, but applied secondary sources No Sample The study has grounded in the background of Ghana, which has already integrated fiscal decentralisation in the name of improved public service delivery and reformed local government legislation in the essential to integrating fiscal decentralisation. The World Bank, IMF and other donor agencies have forced the Tanzanian government to implement such reforms that enhanced the fiscal autonomy of local governments of the country, but the consequences evidenced very dangerous as a whole for the nation. The objectives of fiscal decentralisation that were aimed that ‘increased fiscal autonomy would improve public service delivery’, has evidenced as a wrong policy, local governments have failed to demonstrate any effeminacy in public finance, mismanagement and corruption seriously covered the country and people suffered from extra burden of tax.
Jones M. Jaja (2009) Globalisation or Americanisation: Implications for Sub-Saharan Africa The author has not initiated any quantitative approach. Instead, he has given his own input supported by secondary sources. No sample The study is based on globalisation and Americanisation and its impact on the Sub-Saharan African region. Globalisation has exerted influence on economies, social democracy and welfare states. It has actually minimised the importance of national limits for making financial transactions. It has also pressed on changing the structure of the government, as a result of which the governments have (to attain certain financial goals) modified their political views on governing their respective nations. It has not been clear what has been the result of forces of globalisation as there are different divergent views.
Martinez-Varquez, J., & Yao, M. (2009). Fiscal Decentralisation and Public Sector Employees: A Cross-Country Analysis The author has based his study on three hypotheses: Wagner’s law, Rent-seeking, and Social insurance & economics. In addition to his own views, the author has also consulted secondary sources. Dataset covered 74 countries for various years from 1985 to 2005. The sample size taken was 214. The study revolves around the relationship between government employees and fiscal decentralisation. The study found out that as fiscal decentralisation increases in magnitude, the employment at local government level increases, whereas the number of central government employees decreases.

In the present scenario of globalisation, macroeconomic arrangements are less pertinent since they have constrained access to accomplishing monetary development and lower levels of unemployment, on the grounds that globalisation is accompanied by goodies such us change in the level and nature of manufacturing, innovation, abilities, and social capitals. Globalisation demands a firm and steady supply system in order to achieve a uniform financial growth. Like for instance, these structural reforms were adopted by Denmark relatively early in the 1980’s. Technology policies were initiated and in the mid 80’s structural policies have been the cornerstone of Denmark’s economic policy (Catcora et al., 2012).

The Danish government introduced structural monitoring system which reduced structural unemployment because of its competitiveness. This was incorporated into many other policies including industrial policies. The bigger nations are more prone to the impacts of political independence and macroeconomic arrangements than the smaller ones, such as Denmark, because the smaller nations have limited political independence.

The public sector gains a lot from fiscal decentralisation. Since a lot of administrative work is involved, more people are required to complete it. As such, more job opportunities are created and the people are benefitted. This scenario is true for the local governments only because in fiscal decentralisation, most of the administrative powers are delegated to local governments. As such, more staff is required at the local level rather the central level.

Limitations of the study

Apart from the mentioned scopes of the research, the researcher had to face many difficulties in investigating the impact of fiscal decentralisation in Ghana. The topic has both political and economic features, which has made it a tough subject to handle and understand.

Discussion

Past couple of years have witnessed global nations decentralising important facilities to the local administration. Decentralisation is considered as an approach to enhance proficiency of state departments, and bring the process of making decisions nearer to the individuals influenced by policymakers’ resolutions. Ghana started experiencing the course of decentralisation from 1988 onwards. In 1993, the Districts Assemblies’ Common Fund (DACF) was created. The move was targeted at giving the ‘Metropolitan, Metropolitan and District Assemblies’ (MMDAs) more fiscal independence to really settle on resolutions at the lower levels.

Since then, it has turned into an imperative device for the accomplishment of monetary decentralisation specifically and general decentralisation all in all. To guarantee reasonable utilisation of the DACF, various ministries and departments of the government outlined exact rules for the usage of the support by MMDAs to guarantee fund’s worth. Some of these rules identify with acquisition, while others identify with uncommon portions, for example, a 2% reserved to diminish destitution among Persons with Disability (PWD) and a 7% reserve for Members of Parliament to use for advancement purposes in their supporters.

While decentralisation has been attempted in numerous nations, the results have not generally been attractive. Decentralisation has once in a while missed the mark regarding desires in light of the fact that lower governments are given new obligations, however inadequate assets to complete them. Despite the fact that decentralisation has often been touted as an approach to diminish wastefulness and defilement, in a few cases it appears to be noticeably to just decentralise debasement and wastefulness to the lower level.

The study concentrated on a couple of important components of the DACF. Such elements comprise of: the degree of group investment in DACF supported tasks; the degree of nationals’ mindfulness and proximity to data on the DACF by groups; the level to which DACF supported tasks are honoured in accordance with ‘National Procurement Law’; lastly, the usage of 7% MPs’ and PWDs’ 2% contribution of DACF.

By and large, the discoveries uncover that there has been non adherence to the rules for the usage of the DACF finances by MMDAs, especially the 2% offer of the trust for PWDs. The utilisation of DACF fund is not transparent, and habitually is chosen without meaningful group interest. Proximity to data on and group interest in DACF undertakings have gotten exceptionally tricky to the degree that responsiveness of MMDAs to the nearby needs of citizenry has been influenced. The fundamental discoveries of the study are as under:

Main Findings

Administration and use of DACF for Persons with Disabilities and by Members of Parliament

  • Not less than 2/3rd of PWDs were mindful of their 2% provision within DACF.
  • Right to utilise the 2% allocation of DACF for five years was not even 1/3rd of examined groups. The Northern Region boasted of admittance to more than half of the eligible people. Notwithstanding, in some of the districts not even 1/3rd of PWDs could avail the facility effectively during 2009. The foundation of the NCPWD could have helped comparative high admittance during 2009.
  • Almost 44% of PWDs who effectively availed the 2% share of the DACF from 2003 to 2009 consumed the fund on the festival of the ‘International Day for the Disabled’ and participation of gatherings/meetings.
  • In contrast to the rules, almost 55% of the examined MMDAs are not having the ordered ‘Disabled Fund Management Committees’ set up. According to the new rule the presence of these panels is an essential to getting to the PWD-offer of the DACF.
  • Nearly 2/3rd of MMDAs do not have separate financial balances for the administration of the PWD-offer of the DACF. The nonappearance of these financial balances counteracts dispensing of the PWDs’ offer of the DACF with reference to the new rules for the administration and dispensing of the DACF.
  • Almost 36% of MPs were, at some time or the other, involved in differences (pertaining to the allocation of funds) with the District Chief Executives. As per the MPs, this has unfavourably influenced the usage of tasks in the voting demographics.

Mindfulness and Proximity to data

  • More than 2/3rd of group pioneers are aware of the DACF.
  • The study revealed that the real basis of data on DACF for groups was from the Assembly Members.
  • Radio, which lately has turned into a compelling channel for correspondence, especially with provincial populaces was the minimum utilised by MMDAs.
  • It is mandatory for MMDAs to make appropriate budgetary plans to direct the general advancement of their ranges. MTDPs are means by which natives requirements and desires are interpreted into implementable projects and undertakings. Among the 29 regional congregations that reacted to the study, almost 2/3rd were at default in giving their MTDPs and supplementary plan for the phase from 2005 to 2009. None of the region congregations could give data on DACF consumption returns.
Group Participation
  • The study uncovered that about 50% of group parts were included in the arranging, execution, and checking and assessment of the DACF ventures as reported by group pioneers. For those group parts who did not take an interest in the arranging, usage and checking of DACF undertakings, the key reasons reported by group pioneers was absence of proximity to data on DACF ventures; and ineffectual correspondence framework utilised by the MMDAs.

Dispensing and Use of DACF

  • The study watched that about 50% of group pioneers inspected do not accept that, MMDAs have adequately utilised the DACF to address their improvement needs. As per these group pioneers, their constrained association in DACF ventures has made it troublesome for the MMDAs to be receptive to their needs.
  • Though 62% of MMDAs perceived the criticalness of money streams, 45% of them really equip it.
  • Most of the purchases by MMDAs are done by floating tenders. As per the MMDAs, this strategy for acquisition is utilised on the grounds that agreement is inside the limit of the District Tender Committee. Additionally, it gives open door to guarantee that there is quality for cash.

Taking into account the discoveries of our study, we make the accompanying proposal for approach attention with a perspective to enhancing the right to gain entrance and usage of the DACF by the poor and the marginalised.

  1. Since the subject is of utmost importance, the concerned ministry ought to guarantee compliance by MMDAs regarding rules for payment and use of the DACF by creating concerned committees while having separate ledgers for the fund to empower PWDs to avail their 2% allocation.
  2. Area Assemblies ought to seek after creative measures that guarantee proximity to data on DACF by subjects to evoke their backing and support in the usage of DACF ventures. Right now, groups depend on their Assembly Parts for data which is not extremely powerful. MMDAs ought to hence investigate the choice of depending on group radio station for the scattering of data on the DACF.
  3. To guarantee manageable quality and group responsibility for ventures, District Assemblies should increment group cooperation at all phases of the task since groups are presently disappointed with their level of support in DACF ventures.
  4. In perspective of the inconsistencies between anticipated portions and genuine dispensing of DACF, it is firmly proposed that MMDAs get ready money plan to enhance the impact of the inconsistencies in execution of ventures.

Past couple of years have seen global nations decentralising key works to the lower level. While decentralisation has been attempted in numerous nations, the results have not generally been agreeable. Decentralisation has now and then missed the mark regarding desires in light of the fact that lower governments are given new obligations, however inadequate assets to do them. Despite the fact that decentralisation has now and then been touted as an approach to diminish wastefulness and defilement, in a few cases it appears rather to just decentralise defilement and wastefulness to the nearby level.

For decentralisation to perform, it might not be sufficient to essentially move obligations from focal to nearby level. Financing must be accessible and must be auspicious and reliable. New regulations may be obliged to guarantee that nearby governments are succeeding basic least principles. In the event that subjects are to take part all the more heartily at nearby level, data may need to get more available and transparent.

Ghana started experiencing the course of decentralisation from 1988 onwards. The 1992 constitution gave the legitimate premise for decentralisation. In 1993, the DACF was acquainted with give locale more budgetary independence to settle on choices at the nearby level. The ‘Ghana Poverty Reduction Strategy II’, acquired in 2006 accentuated the pertinence of basic cooperation in reinforcing the local administration. Today, decentralisation stays on the political motivation as numerous perspectives including monetary decentralisation, have not been figured it out. The concerned ministry has sketched a policy that is under scrutiny by the cabinet. Moreover, various issues identified with decentralisation changes have been sent to the Constitutional Review Commission for attention.

Ghana’s decentralisation was intended to accomplish, among others objectives: participatory popular government, expanded lower asset assembly, adjusted advancement and better coordination of improvement initiatives. In 2010, legislature embraced a survey of Ghana’s decentralisation transform and presumed that the destinations of decentralisation have not been attained in their aggregate. This study endeavours to bring basic viewpoints to the discourse on decentralisation. This is done by concentrating on the ‘District Assemblies Common Fund’, that is one of the important means of fiscal decentralisation.

In this study, we ask whether the way that the DACF capacities is reliable with the expansive objectives of decentralisation: expanding effectiveness, expanding natives investment in choice making, and better arrangement of going through with nationals’ needs.

The following segment gives a review of the DACF on the premise of which the particular goals of this study are characterised.

The DACF

Article 252 of 1992 facilitated the formation of a ‘District Assemblies’ Common Fund’ in order to provide extra supplies for growth to the Assemblies. The same Article further gives that Parliament should yearly make procurement for the portion of at least 7.5% of aggregate national income to be imparted among District Assemblies on the premise of a recipe affirmed by Parliament yearly.

The DACF was made for the accompanying reasons:

  • To energise nearby administration and extend Government’s dedication to decentralisation all in all, and financial decentralisation specifically and push manageable self improvement advancement.
  • Complement the inside created trusts of the District Assemblies to attempt advancement ventures.
  • To guarantee impartial circulation of advancement assets in all aspects of Ghana.
  • To make up for advancement lacks in denied groups.
  • To help creation and change of socio-financial base in Ghana.

2006 onwards, the DACF has been the main income benefactor to the MMDAs and has kept on increasing on a yearly basis (refer the figure below). In the year 2008, the DACF formed 43% of the general assets to the MMDAs. Since the commencement of decentralisation, the administration, with the help of the ‘District Assemblies Common Fund’, has dispensed (till 2009) an amount of Gh¢ 1,024,755,220.00 to the different MMDAs.

Trends in DACF disbursements.
Figure 13: Trends in DACF disbursements.

Through the DACF, MMDAs have, besides everything else made employments through house businesses, assembled and enhanced wellbeing offices, built schools, constructed houses, and underpinned group launched activities.

According to the rules for the usage of the DACF, there are unique portions for distinctive bunches. Such portions incorporate 7% for MPs and 2% for PWDs. The 7% reserved for the MPs comes under the 10% meant for the ‘Reserve Fund’. Other heads that are catered under the Reserve Fund are: one and a half % for the RCCs, half % for the ‘DACF Administrator for Monitoring’, half % for ‘Training of District Assemblies’ employees, and half % for ‘Cured Lepers’.

In addition to the funds meant for the Reserve Fund, 25% is reserved for the employment agenda and 61% for the concerned assemblies. Out of the remaining 2%, GH¢ 15,000 (for each district) is meant for ‘Fumigation of Flies’ and various other insects.

A few studies have proposed that there may be difficulties with the execution of the DACF. These include: absence of dependability and transparency in the exchanges, absence of an administrative premise to guide and guarantee fair appropriation of the exchanges, and the kept offloading of administrations and capacity onto lower governments, which has not so much been matched with relating assets.

Moreover, a following investigation of the DACF13 in four areas in 2003 by a gathering of Civil Society Associations in Ghana noted that there were defers and deficiencies in distributions, abuse of DACF by MMDAs, separation in the choice of undertakings (for the most part on a fanatic premise), absence of group interest in undertakings, poor documentation on the DACF activities, low contribution of group parts in the determination of DACF tasks, and unlucky deficiency of transparency in acquisition identified with DACF ventures. Some of these difficulties were likewise affirmed by the Joint Government of Ghana and Development Partner Decentralisation Policy Review.

The DFMC

Every District Assembly ought to structure an exclusive board – the Disability Fund Management Committee (DFMC) with the end goal of dealing with the PWDs’ 2% offer of DACF. The accountability of Disability Fund Management Committee includes the following:

  • Carefully examine and endorse requests from PWDs and OPWD.
  • Scrutinise and oversee the use of funds.
  • Cause to sense the appropriate people at the District level.
  • Furnish statements on a quarterly basis pertaining to the use of funds by MMDAs and NCPD delegates.

A large portion of MMDAs inspected do not have the commanded Disability Fund Management Committees set up. According to the new rules for the payment and administration of the DACF, the presence of these trustees is an essential to avail the PWDs’ offer of the DACF.

As demonstrated above (accountability of DFMC), the capacities of these trustees incorporate screening and sanctioning requisitions gained from PWDs and OPWDs. According to the new game plan this capacity is required to be practiced as per the territories of consumption demonstrated below.

Given the importance of the DFMC, the PWDS and OPWDs may think that it is troublesome to effectively ask for the arrival of the 2% offer of the DACF from the MMDAs. Before the utilisation of this new rule which set up the DFMC, proximity to the PWDs’ offer had been at the carefulness of the particular MMDAs. The absence of a uniform plan at the lower level for checking and favouring ask for by PWDs/OPWDs limits their right to gain entrance to the trust. The following segment analyzes the degree to which PWDs had proximity to the fund under the past administration (2005-2009).

Proximity to DACF by PWDs

The DACF distributions to MMDAs began in 1995. Notwithstanding, get to the 2% offer of the DACF by PWDs has not been empowering. As demonstrated in the below chart, during five years, almost 1/3rd of PWD/OPWD had admittance to the PWD allocation. PWDs were of the supposition that postpones in the arrival of the funds by the MMDAs and absence of data on DACF exchanges may have helped low funds proximity.

Then again, in 2009, at least 50% of PWDs inspected had fund proximity. This development associated with the developing national consideration, as a result of inability issues in 2009, comes after the stronghold of the board for disability, which is obliged to guide the usage of the concerned act. Additionally, the 2010 census had different data to include Ghana’s PWDs. Also, the legislature has overhauled the PWDs offer of the DACF between 2% and 3 % in 2011.

Despite the change in national level access, there were local varieties. For occurrence, while more than a large portion of PWDs in the Northern locale had admittance to their offer of the subsidise, short of what one-third of their partners in the Upper East, Upper West and the Greater Accra districts had entry. Given the elevated amount of mindfulness among tested PWDs/OPWD on the DACF (see figure below), it is hazy what demonstrates the watched local level varieties. Notwithstanding the local varieties in the PWDs/OPWD proximity to the DACF, an evaluation of the use of their offer likewise shows intriguing varieties. The following area inspects usage at the level of PWDs/OPWD.

Access to DACF by PWDs.
Figure 14: Access to DACF by PWDs.

Use of PWDs Allocation of the DACF

About half of PWDs contacted consumed the trust on participation of gatherings and festival of the International Day for the Disabled. Aptitude preparing and backing for money era exercises accounted short of 10% and 15% individually. Greater parts of PWDs are amassed in the casual segment. This seems to be disturbing when contrasted with venture in backing for money era exercises and aptitudes procurement which represent short of what 10% and 15% separately. This is of specific imperativeness looking into the need to diminish destitution among PWDs. An alternate territory of the DACF use is the MPs’ offer of the DACF.

Supervising and using ‘MPs Common Fund’

‘MPs Common fund was initiated in order to facilitate the Members of Parliament to undertake developmental projects within their constituencies. Such endeavours were carried out in order to assist the District Assemblies. The MPs were required to use the funds allotted to them to start low cost projects.

All MPs inspected claim that the trust has been in accordance with necessities in the DMTDP necessities. This was additionally affirmed by 84% of DCEs questioned. As per examined DCEs and MPs, consumptions from the trust are reliable with District Development Plans on the grounds that undertakings actualised are inferred from these Plans.

The vitality, wage era exercises and games divisions accepted the minimum backing from the MPs Fund. While these undertakings may be great ones, various inquiries stay unanswered, because of the restricted data accessible about the activities. Most importantly, the manner in which these ventures are shortlisted is to be understood. The proof proposes that cooperation among MPs and local authorities is not generally harmonious.

Utilization of MPs funds.
Figure 15: Utilization of MPs funds.

Something like 1/3rd of MPs accepted the fact that poor participation from DCES and excess reliance on MPs Fund by constituents for improvement influence their administration of funds. This is a case to be pondered upon. It is to be understood whether this is the reason why people are losing faith in MMDAs’ capacity to satisfy their requirements, in a manner that they are resting faith on MPs for improvement.

There are various challenges that MPs have to confront during the supervision and use of their respective funds. There are instances where the MPs want to start some project but there are unexpected delays at the DACF end in releasing the funds. Such instances account for at least 8.7% of the delays. Another challenge is the unavailability of funds with the DACF. This is the mostly experienced challenge (52.2%).

There are times when developmental works in constituencies cannot be initiated because most of these projects are dependent on aid from DACF and since the aid is delayed, projects are also delayed (13% cases). One quite amusing problem is that sometimes the Member of Parliament and the related DCE are from different political parties. In such cases (4.3%), both of them are hesitant in helping each other else the opposite political party might take the credit. Finally, there are also cases where MMDAs are reluctant to extend the requisite assistance.

In addition to the matter of cooperation, more than 50% MPs who were examined opined that their greatest challenge in the administration and usage of the MPs Fund was its deficiency. In order to overcome this particular hindrance, it is imperative to augment the amount of funds allocated to MPS. Nonetheless, this brings up issue about the bigger part of the MP: authoritative, failure to notice and advancement.

Separated from the difficulties officially experienced, the event of clash between MPs and DCES was examined. Out of the 22 MPs who did not encounter any clash, 36% ascribed it to the warm relationship that existed with the DCES as demonstrated in Figure 5. Almost 18% of MPs credited the unlucky deficiency of clash to successful meeting with their particular DCES. Additionally, for 23% of MPs talked with, the explanation behind their compelling administration and use of the store is the arrangement of consumptions with the DMTDP.

Reasons for effective management and utilisation of MPs funds.
Figure 16: Reasons for effective management and utilisation of MPs funds.

Citizens Awareness and Proximity to Information on DACF

For decentralisation to include people in the decision-making, the government ought to be mindful of the accessibility of assets and the open doors for cooperation at lower level. Mindfulness is simply a first and foremost step. On the other hand, groups additionally require general proximity to data about progressing undertakings and choice making fortunes. Group sensitisation projects intended to illuminate and teach potential beneficiaries about tasks push expanded undertaking mindfulness among group individuals, encourage proximity to the venture and fitting distinguishing proof of target gatherings and their needs.

Nationals Awareness

The mindfulness level among tested group pioneers on DACF was for the most part high. Just about all group pioneers have found out about the DACF (see Table 3). Be that as it may, mindfulness about DACF supported activities among the examined group pioneers was about 70%. At least 97.6% people were aware of DACF and its obligations. On the contrary, only 2.4% people were not aware of DACF.

Comprehension of DACF additionally differed between important sources in the groups. Something like 27% comprehended DACF to be the biggest wellspring of assets accessible to the MMDAs. Just about 23% surrendered that the DACF was to make up for the advancement lacks in the groups. For about 20% of tested group pioneers, the DACF was to supplement IGF of MMDAs.

The Minister for Local Government and Rural Development, as a team with the Minister of Finance and Economic and Planning issues rules for the use of the stores by MMDAs, including segments of using. There are four different divisions that relate to the economic, social, administrative, and environmental aspects.

People’s views about DACF expenditures.
Figure 17: People’s views about DACF expenditures.

As demonstrated in above figure, an appraisal of the view of group pioneers in regards to DACF spending zones showed that almost 80% were of the opinion that the DACF ought to be used on investment projects, procurement of community provisions, environment, and hygiene. Other 20% recommended regions like administration, wages and pay rates, and others.

An alternate paramount component for the advancement of subjects’ investment in the choice making methodology with respect to DACF is the convenient proximity to data. The following segment talks about Citizens’ proximity to data on the DACF.

Proximity to data

Proximity to data necessitates that legislature makes data accessible genius energetically placing it into the general population circle by making it accessible at open structures or on the web. At the same time natives should likewise request this data. A paramount component of proximity to data is that residents are less averse to request data and think that it accessible. This is especially imperative in settings where proximity to data has regularly been low, and natives consequently accept that data is for the most part not accessible, regardless of the possibility that it may be in sure cases.

Discoveries demonstrate that most of the nationals don’t feel that they have proximity to data. This may demonstrate absence of proximity, or a disappointment from government authorities. Further research might be necessary to ascertain the actual perception but in any case, there is a possibility of enhancement of services.

Something like 45% of inspected group pioneers feel that groups don’t have proximity to data on the DACF as demonstrated in the figure below. On the other hand, more than 2/3rd of management and employees of MMDAs were of the feeling that people have proximity to data.

Proximity to DACF data.
Figure 18: Proximity to DACF data.

Albeit 45% of inspected MMDAs showed that they have composed open forum to examine the DACF, they could not show proof about the features of the examinations that were undertaken. This is backed by the perception that about 81% of inspected groups did not take part in such gatherings. Something like 17% of group parts conceded to have taken part in the gatherings. Almost 2% of people were unaware of such meetings. This raises principal addresses about the way in which these gatherings were composed and who took an interest.

In the event that certified proximity to data intimates that data is accessible and that groups know it is accessible, then there are still real difficulties for nationals getting to data about the DACF.

Data sources

Data on DACF is obtained from different sources. The main source, through which data is obtained by groups, as communicated by all classifications of examined respondents, is through officials. MDA meetings and MMDA notice boards also serve as important sources of information. Other sources of information include radio broadcasts, internet, chiefs, and newspapers.

Despite the increasing number of broadcasting centres, it is amazing that the MMDAs have not made use of the prospects of active business and group broadcasting centres to impart data about DACF to the citizens. The degree to which subjects take an interest in the arranging, usage and checking of advancement ventures depends generally on the accessibility, proximity to and unwavering quality of data. In perspective of this, the segment that takes after examines group interest at all levels of DACF undertakings.

Group Input in DACF Projects

People must be included at all phases of tasks in case they are to succeed in advertising group improvement. It has been observationally demonstrated that projects with subjects investment facilitated by group level authorities have by and large been more fruitful than those without it. The study uncovered that about 50% of people were included in the arranging, execution, and checking and assessment of DACF ventures as reported by group pioneers. (See figure below). For those group parts who did not take an interest in the arranging, execution and checking of DACF ventures, the key reasons reported by group pioneers was absence of proximity to data on DACF ventures; and inadequate correspondence framework utilised by the MMDAS.

Input in DACF projects.
Figure 19: Input in DACF projects.

Then again, something like 97% and 65% of MMDAs and Presiding Members inspected individually showed that groups were included in the arranging, usage and checking and assessment of DACF as demonstrated in the above figure. This infers that there is obvious disparity of perspectives on group investment. In this manner, it is vague regarding what constitute group support from the point of view of these stakeholders. What is basic, be that as it may, is that when nearby individuals take part in recognising, outlining, executing and overseeing activities and projects, they would get fulfilled that their needs have been into considered.

In this respect, the study talks about the level of group fulfilment on the cooperation in the arranging, execution and observing of DACF tasks underneath. Almost 2/3rd of group pioneers are disappointed with their level of association in DACF ventures as demonstrated in the figure below. This was backed by about 62% and 38% of Managing Members and Staff of MMDAs individually who conceded that the level of group contribution in DACF undertakings was low.

Level of association in DACF projects.
Figure 20: Level of association in DACF projects.

In perspective of these discovering, respondents were approached to propose courses for enhancing natives’ interest in DACF ventures. All classes of respondents assented to the accompanying measures: expansion proximity to data; advancement of viable group administration, improve MMDAs correspondence framework, and the advancement of base up arranging methodology.

DACF Disbursement and Utilisation

The DACF constitutes the significant wellspring of income for MMDAs to actualise advancement undertakings to profit the citizenry. The Administrator of the DACF dispenses the Fund to the different MMDAs in the nation focused around the equation endorsed by Parliament.

Distributions of DACF

At the start of each year, taking into account the anticipated fund by the legislature, the Chairman of the DACF uses the equation in deciding the allocation of funds to each locale. Actual disbursements ought to be carried out every three months. Past years’ figures of projected funds and the actual disbursement show that there is a huge gap between the two. In 2005, the projected funds were Ghc 5,328, 893.24 and the actual disbursement was Ghc 878,764.56. The figures for 2006, 2007, 2008, and 2009 for the projected and actual disbursement of funds were 6,442,577.05 & 22,455,554.40, 8,152,334.45 & 3,516,188.25, 18,131,454.51 & 25,662,787.86, and 146,476,911.71 & 220,782,829.45 respectively. In case of conflict between anticipated distribution and genuine payment, the need for arranging and anticipating is important to the usage of the DACF.

Representing DACF Funds

Act 462 and Act 455 necessitate the maintaining of individual accounts for records of funds. The study revealed that all MMDAs examined have their respective accounts for maintaining records. This was affirmed by more than 2/3rd of officials. The reason for opening separate accounts was not disclosed by the concerned MMDAs. Each MMDA is obliged to open a different account for the reasons of dealing with the PWDs’ 2% allocation of funds.

By and large, the investigated MMDAs do not have separate accounts for funds. Data acquired shows that the opening of the DFMC includes various procedures that are considered to be too many by the concerned MMDAs; no specific reason was given for not having separate accounts. In circumstances whereby the DDFAs are not set up, it gets relevant to address how the PWDs allotment of funds is used.

An alternate necessity for the usage of the fund by MMDAs is to keep separate accounts. Almost 97% of MMDAs examined have separate money books for recording fund transactions which were made accessible to the DCMCs for examination.

The Auditor-General is obliged to guarantee that MMDAs utilise the funds as per itemised rules by undertaking yearly and uncommon reviews. Also, MMDAs are obliged to plan Supplementary Development Budgets to blanket the DACF allotments every year. About 93% of MMDAs examined affirmed the readiness of plan on a yearly premise, while about 7% reported the planning of these plan month to month. As per the MMDAs, the need to conform to the Money related Administration Act and gathering the prerequisite for receipt of DACF have to a great extent represented the readiness of plan yearly.

Readiness of Cash Budgets

A money plan helps a foundation to control its monetary assets by arranging consumption taking into account accessible money. While 62% of tested MMDAs underscored the imperativeness of trade plan in for spendable dough the administration of DACF, 45% of MMDAs don’t get ready money plan. MMDAs referred to consistence with the Financial Administration Act as the explanations behind its planning.

Besides, MMDAs are obliged to submit month to month reports coating the utilisation of the trust to the Chairman of DACF. About 97% of District Assemblies talked with, affirmed the accommodation of such reports to the in-charge of DACF.

Notwithstanding, duplicates of these reports were not made accessible when asked for by the DCMCs. Balances of debits and credits were likewise furnished month to month to the C&AG.

Inspected officials examined agreed that the arrangement and submission of consumption reports and supplementary plan are the most critical necessities for delivery of funds. In case such reports are not submitted, fund transfer can be denied. In this manner, the brief submission of consumption returns and plan to the DACF Administrator to some degree helps the convenient arrival of DACF to MMDAs. Additionally, it is admirable to note that there is large amount of agreeability with necessities for the receipt of DACF exchanges in spite of the fact that there is opportunity to get better, particularly on account of sporadic examining of DACF records.

This in any case, it is critical to know how group pioneers evaluate the success of the DACF in tending to their improvement needs. The study watched that something like 50% of group pioneers don’t accept that, MMDAs have viably utilised the DACF to address their improvement needs. As indicated by them, their restricted association in DACF ventures has generally represented their unmet needs.

Data Analysis and Findings

When we talk about fiscal decentralisation, we should keep in mind its positive and negative impacts on the economy in general. It is not just the macroeconomic view of the impacts in the stability in economy, but also in micro level. There are various definitions of decentralisation and among them the one that Rondinelli suggested is,

“The transfer of the responsibility for planning, management, and the raising and allocation of resources from the central government and its agencies to field units of government agencies, subordinate units or levels of government, semi-autonomous public authorities or corporations, area-wide, regional or functional authorities, or non-governmental private or voluntary organizations” (Rondinelli, 1989).

Governance near the people is also very important and it is one of the democratic pillars of decentralisation for the higher quality and quantity of services and goods delivered in the economy. Another aspect is the efficiency of public sector. Here, the discussion is open and in our opinion will always remain open because of non-specified field of services being offered locally and a classification of efficiency and problems of measuring it. Also, another aspect is the mobilisation of revenues and expenditure that also measure the degree of local autonomy. One of the sensitive topics in this area is of course the distribution of goods in the community. If the contribution and influence of community and the mobilisation of revenues are kept in mind, the problem of distribution of goods will be easier.

To measure the revenue autonomy, we may use a lot of indicators. The main ones are those of legal explanation, development over time of the revenues, distribution of local revenue and also comparison with developing countries that have a high degree of decentralisation. First of all, the right to change the tax rate is not in the hands of the local units. On the contrary, it is in the purview of the council of region in collaboration with the central government. The local governments can only set the rate of local fees.

Decentralisation turned into an imperative approach objective since the 1970s and 1980s, as governments tried to portray socially neutral example of financial development and to help poor people in their respective areas. Numerous nations are decentralising financial, political and authoritative obligations to local governments, the private segment, and NGOs. There are number of balanced legitimisations for decentralisation.

Among others, decentralisation arrangement is sought after due to its imperative impacts on asset assembly and designation, macroeconomic adjustment, administration conveyance and value, which influence financial improvement and decrease in destitution. It is this improvement prospective that gives the best pleads to decentralization arrangements in most of the nations (Ikeanyionwo 2001).

The aim of this chapter is to assess and evaluate fiscal decentralisation and the local economic development in context of Ghana; in order to do so, the researcher has conducted an extremely well designed survey in the country. The survey has been conducted amongst 1876 respondents in total throughout the country to find out the real picture of the fiscal decentralisation and its impact within the national arena.

Personal Introduction

The questions in this segment related to the demographics of the respondents such their age, religion, educational qualification, marital status, and area of domicile. The respondents were required to fill up the respective fields and let the researcher know about them.

In order to ensure an appropriate implementation of the entire research survey, it was necessary to arrange the survey forms according to the date of interview of the respective respondents. This had made it easier for the researcher to organise, classify, assess, and compute the entire research survey in an appropriately integrated manner. As a result, it was truly helpful for the researcher to identify those survey forms where the interviewees had written the respective dates when they filled the survey forms.

The best way to ascertain the effectiveness of government projects is to inquire from the people who are the expected recipients of the proposed benefits. Also, if the respondents are mature enough to understand the significance of a research it becomes easier to gather data and that too accurate one. Inexperienced and immature people can give wrong and unrelated answers that can mislead the researcher.

The results clearly depicted that young aged people were higher in the entire survey than elderly ones. In addition, aged and experienced people represented only a small extent of the research. Although the most experienced people were lower in number, the researcher had tried to concentrate more on the feedback from such respondents.

When a government starts any social projects for the welfare of people, gender of the recipients of benefits is not significant unless a project is distinctively targeted at a specific gender (male or female). Since fiscal decentralisation is meant for the benefit of the whole nation, it is important to understand the perspective of males as well as females on the effectiveness of fiscal decentralisation.

The result shows the fact that the participation of female was much lower and it was quite difficult to ensure gender equality in the research survey as a whole – but still, the number of female who participated was encouraging in a true sense.

The respondents being married or unmarried does not make any difference for data collection, provided they are mature enough to understand the gravity of the research. A country’s economy does not have any effect on people based on their marital status. This particular question was included in order to complete the demographic profiles of respondents.

It is arguable from the given statistics that unmarried people were higher in number in the entire research survey – more than half of the respondents comprised unmarried people; however, very few selected the ‘others’ section.

Education level of respondents plays a very significant role in surveys of such importance as this one. Fiscal decentralisation is a topic that might not be understandable to a layman. Education helps people in understanding the usefulness of government projects so that they may offer support for such projects. Public support and cooperation is very crucial for the success of any project (in achieving the objectives). Governments should make it mandatory for schools and colleges to include basic knowledge of important aspects of governence in the curriculum. If students have a basic knowledge of such aspects, they might be able to interpret the significance of projects under fiscal decentralisation.

It is clearly notable from the results that the number of respondents, whose study level was graduation, was the highest in contrast to others. In addition, people who have studied still college level were the second highest. Conversely, people who were literate only from primary school or those who studied from doctoral level were the lowest in numbers among the respondents.

Likewise education, occupation of people also plays a crucial role in determining the success of projects. If people are directly related to the outcomes of any project, there is a possibility that they might lend support and cooperation towards the implementation and subsequent success of the project. On the other hand, there are certain projects, like those under fiscal decentralisation, that are meant for the masses. As such, occupation is not significant in obtaining data for such projects.

The result shows the fact that the number of respondents holding a public service were the major group to participate in the entire research survey. On the other hand, number of respondents who were students was the second highest and private service employees were the third highest. However, it is clearly visible that only a very few self-employed people and people holding households were present in the entire research survey.

This can be considered to be positive to certain extent because of the fact that greater number of public service holders, private service holders, and students would mean that they would have more knowledge regarding fiscal decentralisation and this would in turn increase the accuracy and quality expectations of the research survey. However, these factors would be analysed and discussed in more detail later in this data analysis chapter.

A nation consists of people who follow different religions. Moreover, governments cannot follow policies that are beneficial foe any particular religion. The welfare of all the people, irrespective of their religion, has to be taken into consideration while launching any project. This particular question was important because it was crucial to know the perspective of people from different religions.

The results show the fact that despite a number of factors that were present at the survey procedures – the respondents have clearly indicated their religion to the researcher. However, even if majorities belong to only one religion, this would not affect the entire survey summation by any means and the fact that respondents from other ethnic backgrounds were lower will not pose any discrepancy for the findings and results of the research.

Government projects cannot be targeted for all the areas of a nation at a time. There are certain logistic and other problems that have to be considered. As such, projects are targeted at specific areas. So, it is important to know the area of respondents in order to ascertain whether they are from the project-targeted area or not.

The results very clearly indicate the fact that most of the respondents of the research survey lives in urban places. Even though this was not an intentional approach in the research survey to analyse respondents from urban places only, this could be a favourable thing for the researcher because the urban population, in most of the cases, possess greater awareness when it comes to economic indicators, fiscal policies, of fiscal decentralisation.

As a result, a survey that has more participation from the urban people mean that increased accuracy and precision can be gained from the people in order to conduct the survey. However, it is important to note that even though the substantial part of the interviewees was from urban places, still, a notable part of the surveying population were from rural and semi- urban places.

It is clear from the analysis that most of the respondents were regulated by municipal assemblies; however, a significant number of respondents also lived in places where there were district assemblies, sub- metropolitan district councils, or metropolitan assemblies.

Degree of Fiscal Decentralisation

This segment of the questionnaire was aimed at knowing the perception of the respondents about the degree to which fiscal decentralisation met their expectations. In order to understand the effectiveness of fiscal decentralisation, it is important to have an understanding of the concept. As such, it is also crucial to understand people’s perspective about fiscal decentralisation.

The degree of fiscal decentralisation is contingent to the severity of the decisions to be taken by the lower levels of governance; fiscal decentralisation programmes can be successful only if the local governments are allowed to take decisions only on petty matters. If they are given the authority to decide on important matters, the whole programme might go down the drain. The level of decentralisation is also affected by the technology being used like for instance, if the communication system is advanced, it will be easy for the central authority to communicate with the lower levels.

If the communication system is not up to the mark, the communication will be slow and this might affect the outcome of the proposed program. Political aspects can also influence the extent of decentralisation; vested interests of some politicians might hinder the approval of decentralisation for any particular project. Availability of managers to implement the decentralisation process might also affect the degree of decentralisation.

The most well-known hypothetical method of reasoning for decentralisation is to achieve assignment effectiveness among distinctive local inclination for people’s merchandise and facilities. Financial obligation is one of the main segments of decentralisation. In the event that decentralised units are to complete their obligation viably, they must have sufficient level of incomes – raised generally and/or exchanged from the focal government – and in addition the power to settle on choices about uses. This methodology of dissemination of people’s fund and obligations to the different levels of government is generally alluded as monetary decentralisation.

The stress of financial decentralisation is to reinforce sub national accounts and hence their ability to give people’s merchandise and facilities. The thought is to give district governments some income forces and consumption obligation, and permit them to choose the level and structure of their use plan. Thusly, the local individuals will have the capacity to lucid their needs and inclination, and partake in administering their undertakings. Financial decentralisation as a method for attaining local improvement is focused around two primary contentions, specifically monetary proficiency and local income preparation.

Degree of Fiscal Decentralisation

This data pertaining to familiarity level of fiscal decentralisation illustrated that majority of the respondents were familiar with the conceptual framework of fiscal decentralisation; the higher degree of better understanding of the respondents would assist the research to get exact outcomes.

It is vital to identify the empirical relationships among the three types of decentralisation, for example, fiscal, administrative and political decentralisation, their interdependence and integration, if there is strong accord with each other, it would be significant for the fiscal decentralisation of Ghana to integrate the others for better outcomes. This would also illustrate the core difference of the three major magnitudes of administrative, fiscal, and political decentralisation that the people of Ghana has been experiencing for the last few decades and the country at this point interested to review its decentralisation policy liking with major challenges to bring sustainable development of the country.

Data gathered from the answer of the respondents to this question of the offers a pragmatic test fiscal decentralisation that Ghana has adopted by approving the factors that confirmed the core opportunities that generates its interdependence with the other two types of decentralisation measuring the degree of success and challenges of implication.

Data pertaining to fiscal decentralisation being an integral part of administrative and political decentralisation, majority of the respondents were in favour of the idea. Some of the respondents had a strong consent about their opinion through their real life practice. On the other hand, some respondents disagreed that the fiscal decentralisation is an integral part of administrative and political decentralisation. Some respondents had a bad experience and disagreed while the remaining respondents had no experience on this issue or they could not understand the difference between three types of decentralisation.

Among the respondents, most of them felt that in Ghana the fiscal decentralisation is an integral part of administrative and political decentralisation, at the same time, a few of them were of the opinion that the fiscal decentralisation has no accord with the others.

The purpose was to recognise the formulation of decentralisation in Ghana. Being a unitary state, Ghana puts into practice constitutional democracy with multi- party politics and the country is strongly committed to deliver better quality of state services to its citizens by transferring some of the powers to local governments, thereby integrating administrative, fiscal and political decentralisation. Under the military regime of PNDC1 in 1988, the country brings its legislative reforms in order to ensure people’s participation at the development initiatives by introducing local governments where MMDAs are providing public services at district, metropolitan, and municipal administrative units and the RCCs keep their efforts to coordinating the administrative decentralisation at regional level.

The appropriate structure of decentralisation at the RCCs and MMDAs would provide strength and power to generate fiscal stakes from the new area of local services by ensuring people’s participation with new form of governance process along with shifting authority and functions at local level. Even the survey results suggested that RCC and MMDA of Ghana have appropriate compliance with the theoretical structure of decentralisation.

The aim behind asking the respondents about RCC and MMDA was to assess the financial independence of the local governments of Ghana; the RCCs and MMDAs are the major unite of the local government to deliver and coordinate public service deliver among the local communities while revenue and funding arrangements are the vital factor that could provide sufficient public service to the local communities. In Ghanaian practice, most of the finance comes from the central governmental transfer along with district assembly’s common fund where MMDAs have very limited scope to way in which the funds would be spent, for funding sources the local governments are allowed to receive funding from the GoG and its development partners with very limited extents of fiscal autonomy.

Among the 1876 respondents, 39.98% respondent think that the RCC and MMDA of Ghana has been enjoying fiscal autonomy while 53.53% respondents stand against the opinion arguing that there are not enough fiscal autonomy in the RCC and MMDA to comply with the standard form of decentralisation and 4.26% think that there has never been any fiscal autonomy in Ghana. Considering these results, it can be concluded that RCC and the MMDA of Ghana are enjoying a limited extent of fiscal autonomy.

Considering the changing global scenario, it is imperative for the Ghana government to update its policies. The government makes several reforms but it is up to the people to decide whether such reforms are enough for the proposed benefits of fiscal decentralisation.

Under the Ghanaian constitution of 1992, the standards of separation of power has integrated that aimed to promote local governance through a check and balance between the central and local governments where the major political concern faced to the presidential election with a lesser concern to the parliamentary election by ensuring the independence of judiciary confirming horizontal separation of power. On the other hand, multiple layers of local government and democratic process in the MMDAs indicate the norms of horizontal separation of powers although the independence of judiciary has undermined by the appointment of the judges by the executives and presidential power to appoint the Supreme Court judges.

Among 1876 respondents, 35.98% respondents think that the separation of power in Ghana is quite enough for fiscal decentralisation while 58.00% respondents stand against the opinion arguing that there have no adequacy for standard form of separation of power that can bring a meaningful fiscal decentralisation and 4.90% think that in Ghana there were never any separation of power. As a result, the conclusive remark in this regard is that Ghana needed to have further separation of power to implementing a consequential fiscal decentralisation aimed to strengthening the local government.

Degree of Fiscal Decentralisation

Appropriate administration conducive to implementing fiscal decentralisation is necessary for attaining the objectives. Implementation of fiscal decentralisation projects needs effective administration as well. It was urged to identify the legitimate comparability of administrative decentralisation to facilitate fiscal decentralisation reasoning that no fiscal and revenue policy of the local governments would be implemented if they have not any administrative sovereignty within the local jurisdiction while the central bureaucrats my not allow to reduce their control over the local authorise.

Out of 1876 respondents, aggregate 48.92% individuals agreed that administrative decentralisation in Ghana is comparable with its fiscal decentralisation with strong stands of 7.30% respondents. Meanwhile 41.08% respondents disagreed that the administrative decentralisation in Ghana is not at all comparable with its fiscal decentralisation where 11.89% have strong disagreement and 10% of the respondents preferred not to say anything in this regards. As a result, the conclusive remark in this regard is that the administrative decentralisation of Ghana needed to have further cooperative to implementing the momentous fiscal decentralisation intended to underpinning the local government.

Degree of Fiscal Decentralisation

Although the multiparty politics has encouraged by the constitutional change, but the political power of Ghana has been vacillating between civil and military interference evidenced from the five consequential general elections where bitterness of the two major parties NDC and NPP ruled the country alternatively those may not uphold the sense of good governance. The researcher intended to determine whether the fiscal decentralisation of Ghana demands further political decentralisation to overcome the bitterness of the two political parties empowering fiscal autonomy at the local level.

The decentralisation process of Ghana followed the huge sequence of reforms with the aim to overcome the unconcealed interference of the central government, but the bureaucratic red tape is continuously keeping its efforts to decentralisation and more weakening the local governments in Ghana, where the central politicians have a greater interest in this connection. The interest of this question is to settle on the open interference of the central government upon the local governments that could hamper the implication of the fiscal decentralisation of Ghana and influence to generate hostility among the local communities instead of sanction fiscal autonomy at the local governments.

The higher range of fiscal autonomy by the local governments indicates the elevated extent of fiscal decentralisation; if there is no extra burden of local taxes imposed, people may be suppressed and come out to protest against the fiscal decentralisation that may hamper the core values of democracy. This aspect was included in the questionnaire in order to assess people’s impression about the local revenue sources and to analyse the extent to which local agencies are capable to meet their own expenditure under the prevailing law of Ghana.

As the majority of the respondents think that legislative framework of Ghana highly allowed the local governments to collect local taxes to meet their own expenditure, the conclusive remark is that the fiscal decentralisation in Ghana explored the local taxation power to the local authorise that is essential to put into practice in right direction rather than any legislative reform.

Under the close cooperation with different development agencies, the government of Ghana has already implemented DDF2 with the aim to modernising and getting better local governmental financing strategy in Ghana, as an alternative resource of finance for the MMDAs that would strengthen the poverty eradication program in the country. Meanwhile, the Paris Declaration has generated a wider scope for debt financing at the local governments including aid and foreign assistance for the local NGOs, civil society including the local institutions those are working to improving the lifestyle of the local communities through education, sanitation and primary health care in the rural area. The aim was to identify the scope of debt financing for the local governments under the existing regulation as an integral part of fiscal decentralisation in Ghana.

Although a large portion of the Ghanaian national budget deficits is made up by foreign aid and foreign loans, huge number of projects, including education, are funded by foreign fund, but surprisingly, the opportunity of seeming foreign loans by the local agencies are limited. The aim is to identify the scope of seeking direct foreign aid and loans for the local governments under the present fiscal decentralisation in Ghana with the motive to assessing the level of fiscal autonomy that has put into practice from the respondent’s real life experience.

Out of 1876 respondents, aggregate 54.43% individuals agreed that the local governments of Ghana are allowed to seek foreign aid and loan, among them 18.50% respondents have strong stand in favour of their option. Meanwhile 39.34% respondents disagreed that the local governments of Ghana are not allowed to seek foreign aid, loan, among them 18.98% respondents have strong disagreement, and 5.86% of the respondents preferred not to say anything in this regards. As a result, the conclusive remark in this regard is that the fiscal decentralisation in Ghana needs further empowerment of the local authorise to identify priority basis projects and to allow them for seeking foreign loans.

Degree of Fiscal Decentralisation

It is vital to understand if there is any autonomy for the local governments in Ghana regarding their financial transfers to and from the central government as an integral part of decentralisation. The conclusive remark in this regard, based on the survey results, is that the fiscal decentralisation in Ghana has provided limited opportunity for the local governments for decision making regarding the financial transfers to and from the central governments.

The local economic development strategies in Ghana illustrated the course of action of the local governments to produce new projects and take initiatives to implement them by managing fund from local resources or go through the partnership with social entrepreneur, private sector business firms, and non-governmental organisations that would ultimately contribute new job creation and economic mobility to the society. The engagement of this question is to identify the level of independence to boost such local development strategies by the local governments in Ghana, which is an essential part of fiscal decentralisation.

Out of 1876 respondents, aggregate 93.87% individuals agreed that the local governments of Ghana are to some extent independent to plan their economic development strategies, while 6.13% respondents think that the local governments of Ghana are never independent to plan their economic development strategies.

Ghana has gone through a number of constitutional and legislative reforms, focusing on the decentralisation that is taking place for over two decades with some success as well as many challenges that rose from the existing system, conflicting with constitutional and legislative framework and insufficient to ensure accountability for their HRM, institutional arrangement, and budgetary allocation.

Consequently, the legal status of local governments to handle powers and responsibilities has failed to carry out the consigned duties efficiently to deliver public services at their local communities due to their socioeconomic and political weakness while the civil societies are continuously urging to ensure accountability both at the local and central level. The present question has risen to assess the effectiveness of constitutional and legislative reforms in Ghana aimed to empower the local governments to perform their powers and responsibilities.

Degree of Fiscal Decentralisation

Out of 1876 respondents, aggregate 97.17% individuals agreed that the legislative framework of Ghana have allowed the local governments some legal status to exercise powers and responsibilities while 2.83% respondents stands against this option.

It has been interpreted by development economists that the development initiatives generated from the grassroots level would bring sustainable development. With such motivation, Ghana has reformed its legislative framework to implement fiscal decentralisation that would ultimately enhance political and administrative decentralisation to deliver enhanced public service to the local communities.

The central government and development agencies urge for harmonised development for all the regions and to do so, the central government imposes different harmonised project for all the regions, which the local governments welcome without any objection or for not to having any provision for rejection as a norm of balance of power between the central and local government. In this context, the present question has risen to assess whether the local governments have power to accept and reject central government planning.

The decentralisation of Ghana has generated huge problems as well as prospects for the country where conflict between the civil servants and employees of local government is a major issue. The necessities of effectual civil servants are unavoidable for good governance, but the civil servants are not willing to go to the local agencies due to their location at rural remote areas.

On the other hand, developing human resource at the local level is a great challenge for the local governments where socioeconomic development and effectual public service delivery to the local communities are the most priority based tasks for the local government. Thus, the situation urges public service reformation in this regard. In this context, the present question has risen to assess if there is any conflict with the civil servants and employees of local governmental.

The dilemma generated from the decentralisation drive of Ghana has pointed towards the conflicts between the civil servants and employees of local governments, where the local governments are suffering from the crisis of effectual civil servants to ensure good governance, but civil servants are not willing to go to rural remote areas. This has given rise to the need of a different recruitment process. To overcome such challenge of developing human resource, Local Government Service Act-2003 has provided enhanced scope to meet the crisis of civil servants at the local level, where the local governments are empowered to be independent for selection, recruitment, and promotion of local employees with the aim to ensure effectual public service delivery at local level.

From the theoretical viewpoint, Ghana has gained tremendous progress for its decentralisation drive where the country accomplished significant progress in the direction of better democratic ownership of the foreign aid, enhancing formulation of the civil society accountability of the local authorities, local decision-making, and financial management. Ironically, there is no evidence of local officials for the nation’s policy-making. The national Parliament of Ghana is the highest forum of the policy-making and legislative council where there is representation of the MMDA officials, thus, it is a greater challenge for the country to reflect the views and options of the local authorities on the national policy formulation.

Democratic Practice and Good Governance

The questions in this segment were aimed at finding out whether or to what extent the decentralisation process of Ghana has enabled the democratic practice and good governance in context of international standards. Democratic practice is a very important concept as far as the nation’s complete sovereignty or autonomy is concerned, and it is highly essential for a country like Ghana to deal with this issue rather seriously, when it comes to decision- making processes. Allowing the powers to be decentralised from the central government is indeed an important approach in ensuring democratic practices across the country, but at this stage, a large sample of the population of the country will come forward to answer to what extent it has been able to do this job successfully.

This mass sample will also ascertain whether or to what extent good governance has been ensured in perspective of global benchmarks. In some conditions, the participation of the people and authorities in a decentralised process, to a great extent, helps the democratic practices to ensue in a correct mode by permitting good governance to move forward in an admirable approach, ensuring that the governing bodies are working in a free, fair and corruption free environment.

It is clearly visible from the survey results that most of the people are more or less satisfied with the degree to which the decentralisation process of Ghana has enabled the democratic practice and good governance in context of international standards. However, a significant part of the population is still not so much impressed with the overall performance of the local authorities in this regards. Therefore, the authorities should try to work much harder in terms of procedural fairness and good governance in order to reduce any further public grievances.

In this part of the research, the researcher had tried to find out extent to which fiscal decentralisation has enabled to mitigate the conflict of Chieftaincy in the country. It is important to note that the conflict of chieftaincy is one of the essential aspects in a country like Ghana and whether it has been mitigated by means of fiscal decentralisation remains a vital factor for analysis in the country.

The results very clearly indicate the fact that most of the respondents of the research survey believe that fiscal decentralisation has enabled to mitigate the conflict of Chieftaincy in the country.

Yet another question dealt with the aspects of the appointment process of governmental officials in the local administrations by asking the respondents about – whether they were democratically elected or their appointments were made in some other ways. It is an important factor for the people of the country because democratically elected governmental officials in the local administrations is a positive sign for ordinary people in sense that they would reflect people’s anticipations in a better way than that of the undemocratic candidates.

The result shows the fact that most of the interviewees of the research survey have agreed that the local governmental officials are democratically elected; in addition, the majority of the surveying population has acknowledged that they have democratically elected local governmental officials in their respective areas; nevertheless, some of the surveying population have strongly disagreed to this issue.

The aspect of internal democracy was included in the questionnaire in order to find out the whether the political parties of Ghana practice it within their regular working schedules; this is because, in certain circumstances, the political parties seem to be rather authoritarian in terms of decision- making, affecting the regular working practices to a great extent.

Unethically imposing their own decisions over the workers and the general people and not listening to others’ views and comments would mean that the overall development of the country would be adversely affected or hampered. It is noteworthy that even though this question of the survey would not contribute significantly in the abridgment of the findings and results chapter, at a halt, some extensive grounds are present based on which such a question was created and included in the survey form. To be precise, the replies of this query will facilitate the research to discern or get a perception regarding the inner democratic practices, or manipulations in making a particular type of resolution.

The survey results show that most of the people are relatively contented with the level to which the political parties of Ghana practice internal democracy within their regular practice. On the other hand, an insignificant part of the population is not greatly amazed with the political parties of Ghana in this regards.

The highest number of people from the chosen sample had remained conscious about stating that there are strategic shifts among the political parties due to fiscal decentralisation. This is because many of them have noted tactical changes that occurred within parties and these changes are going to affect the country’s overall economic or political performance either adversely or optimistically. Only a few of them refused to believe this issue, but the number of such people were even lower than those who have not commented anything to the proposed question.

The researcher focused on assessing the success rates of the political parties of Ghana about getting motivated to lessen intra and inter party disagreements. It was important for the research survey to get a proper idea in this regards in order to identify whether or to what extent disputes or other discrepancies still exist between different political powers throughout this African nation.

The result shows the fact that most of the people think that the political parties of Ghana are motivated to lessen intra and inter party disagreements, as they had selected the mostly motivated and fairly motivated options. However, a substantial number of people stated that such a motivation was not present in the political parties in this African country.

At this point of the survey questionnaire, the researcher aimed to identify the positive impacts of fiscal decentralisation in the country on the refuges, migration, and border disputes; as a result, the respondents were requested to select a five- point scale. Due to this consequential effect, all the respondents filled up this part of the survey and so it has been noted that there has been extensive improvements in Ghana when it comes to the consideration of its success and good performances in regard to refugees, migration, and border disputes.

It is arguable from the point of views of the surveying population that certain features such as refuges, migration, and border disputes (which have always posed to be major problems for the country) were notable lowered because of the fiscal decentralisation in the country. In addition, most of the people had selected the “agree” option – even though some people opposed this view, as is notable from the chart.

In order to examine the extent to which fiscal decentralisation has remained capable to lower various forms of crimes and heinous activism such as drug trafficking, illegitimate arms trade, and other organized crimes around the country, the researcher included a question pertaining to this aspect. The researcher took a deep insight in the feedback of the respondents; even though the respondents were free to select any option from the five- point scale, it is notable that most of the people were engaged to select only one option.

The result shows the fact that most of the people have remained satisfied with the reduction of the criminal activities in the country after the proper integration of the fiscal decentralisation in the respective regions. Even though the number of people who disagreed to the proposed statement was the second highest, aggregate number of people who agreed was the highest.

How capable are the local governments of Ghana in ensuring peoples participation?

Among 1876 respondents, total 97.60% individuals agreed that to some extent the local governments are competent to demonstrate their effectiveness to ensure people’s participation in their fiscal decentralisation program, while 2.40% respondents disagreed that they are never capable to demonstrate their effectiveness to ensure people’s participation. As a result, the conclusive remark in this regard is that the fiscal decentralisation in Ghana has provided boundless opportunity for the local governments to accommodate local people with their program.

What is the capability of local governments Ghana in ensuring effectiveness in the revenue collection mechanisms and institution

Among 1876 respondents, total 97.81% individuals agreed that to some extent the local governments of Ghana are capable of demonstrating their effectiveness for revenue collection mechanism for fiscal decentralisation program, while 2.19% respondents disagreed that they are never capable to demonstrate their effectiveness to ensure revenue collection mechanisms. As a result, the conclusive remark in this regard is that the fiscal decentralisation in Ghana has provided vast opportunity for the local governments to generate local revenue to strengthen their fiscal autonomy.

Do you agree that the democratic system of Ghana has ensured free, fair and impartial competition for election and power politics in the promotion of democratic governance

Although the decentralisation drive of Ghana was started under the military regime, democratic governance is a foremost precondition for the successful implication of fiscal decentralisation, thus, this segment engaged to identify whether the present political system has enabled democratic practice for power shifting. Data gathered from the answer of the respondents to this question has offered a pragmatic test that the democracy in Ghana has engaged to uphold free, fair, and impartial election system with a lot of challenges for implication.

Among the respondents, 60.07% respondents think that in Ghana the present political system has enabled democratic practice for power shifting, at the same time, 33.48% respondents disagreed arguing that the present political system has not uphold the enabled their effort to promotion of democratic governance, at the same time 6.13% has no opinion in this regards. Thus, the conclusive remarks in this regard are that the political system of Ghana required to promoting strong democratic governance for the meaningful fiscal decentralisation.

Does the fiscal decentralization has any encouraging weight carried out to establish the rule of law and the supremacy of the constitution

The constitution of Ghana has ensured the supremacy of the constitution and the common law uphold the rule of law, the aim of this question is to identify whether the fiscal decentralisation program has any positive attributes to carry out the rule of law by establishing good governance at the local governments. Among 1876 respondents, total 96.70% individuals agreed that to some extent the fiscal decentralisation of Ghana is encouraging rule of law and the supremacy of the constitution, while 3.30% respondents disagreed that the fiscal decentralisation of Ghana is never encouraging rule of law and the supremacy of the constitution. As a result, the conclusive remark in this regard is that the fiscal decentralisation in Ghana needed to have more encouraging rule of law and the supremacy of the constitution.

The effect of fiscal decentralisation on the level of corruption is a debatable issue. It is argued that more transparency and accountability in the different processes of fiscal decentralisation can help in reducing incidents of corruption. On the other hand, Samimi, Zakeri & Azizi (2012) stated that many researchers provide different view because they observe that corruption increased for fiscal decentralisation in the many developing countries while local governments fail to recruit independent human resources and arrange training and monitoring process properly; otherwise, it can adversely affect the national economy.

Samimi, Zakeri and Azizi (2012) stated that it is difficult to measure the extent to which fiscal decentralisation would affect on the level of corruption and it is one of the most debated issues at present while many researchers have argued that more transparency and accountability because of fiscal decentralisation reduce corruption in greater extent. Among 1876 respondents, jointly 63.96% people provided negative feedback by arguing that the level of corruption under fiscal decentralisation of Ghana is too high whereas about 22.97% respondents stated that the level of corruption is not significant enough.

On the other hand, 9.33 percent respondents felt that the corruption level was less and the rest 2.51% of the total respondents directly stand against the statement as they stated that fiscal decentralisation has no connection with corruption; however, considering both primary and secondary data the conclusive remark in this issue is that the level of corruption under fiscal decentralisation of Ghana is significant to address.

In your opinion to what extent are local governments of Ghana capable to combat corruption successfully

It requires a deep understanding of economics and governance to understand whether the local governments of Ghana have been able to combat corruption to the required degree or not. Practical experience is also significant because people come across various instances of corruption in their daily lives. The required understanding should pertain to fiscal decentralisation. People should be able to comprehend that corruption reduces the benefits of welfare projects to the masses.

Out of 1876 respondents, aggregate 67.22% respondents have enough confidence that the local governments of Ghana are fully, mostly and fairly capable to combat with corruption successfully though only 25.21% respondents argued that the local governments are less capable. Rest 7.25% respondents have no confidence on the local government and they believed that the local government would never be able to reduce corruption; however, considering both primary and secondary data the conclusive remark in this issue is that the local governments of Ghana are capable to combat with corruption successfully, but it is essential to take corrective action.

It is one of the most debated issues to the politicians and researchers as it is difficult to measure the extent to which the local governments of Ghana ensured to respond appropriately for women’s empowerment; here, it is important to mention that the local governments concentrate on different factors like political, economic, social, and strategic interests to recover the positions. However, the government has taken many actions from time to time to empower women for the socio economic development of the entire nation, for instance, the government has taken Women’s Empowerment Program (WEP) in order to develop leadership skills, increase education level, distribute non-prescriptive contraceptives, participate in the cultural activities, and focus on the practical needs and so on.

To what extent have the local governments of Ghana ensured to respond appropriately for womens empowerment

Among 1876 respondents, aggregate 75.48% respondents have enough confidence that the local governments of Ghana are fully, mostly and fairly ensure to respond appropriately for women’s empowerment though only 21.27% respondents argued that the local governments are less ensure. Rest 2.93% respondents have no confidence on the local governments and they argued that the local governments would never be able to ensure empowerment of the women; however, considering both primary and secondary data the conclusive remark is that the local governments of Ghana have already taken numerous actions to respond properly for women’s empowerment.

Amu (2000, p.18) presented that more than 50 percent of the labour force are women and they mostly engage in the manufacturing segment, for instance, agricultural, industrial and service sector; however, very small part of the community engaged in the administrative, informal and managerial jobs since the education for the women has not ensured like other developing countries. At the same time, Amu (2000, p.18) stated that human resource is a power and crucial ingredient in the growth procedure; therefore, the level of women’s participation in the socio economic development is comparatively satisfactory though they did not get equal opportunity in administrative and civil servant jobs due to problem related with skills, training, ideological barriers and so on.

The women are participating politics at recent time and contribute with the government to change society; however, the aim was to know the view of the respondents regarding participation of women and it can be found that 1842 respondents agreed with the statement considering circumstantial evidence. Consistent with the survey report, the percentage of fully participate, mostly participate, fairly participate, less participate and never participate are 8.26%, 28.84%, 34.86%, 26.23%, and 1.60% respectively. The subsequent table and chart depict the corresponding results:

What is the level of womens participation in the socio ecomomic development

Out of 1876 respondents, aggregate 71.96% respondents have agreed that women of Ghana are participating in the socio economic development of the country though 26.23% respondents argued that this participation is not significant enough. However, rest 1.60%respondents have no confidence on women, as they seemed that women’s have no participation for the socio economic development for the national development, but from the primary and secondary data, it can be concluded that women of Ghana highly participated in the socio economic development.

According to the report of secondary data sources, the government of Ghana has already taken many initiatives to ensure the rights of minorities, children, and disable; for example, remove the conflicts and violence among the minorities with different ways, decrease clashes between religious groups, changes in demographic balance between groups, and the strengthening of rule of law. At the same time, the local governments of this country are working to provide constitutional rights (economic rights, educational rights, rights of the disabled) to minorities, children, and disabled people; however, aggregate 1333 respondents provided positive response, 460 respondents had less confidence on the local government, but 79 respondents directly stand against the statement.

Among 1876 respondents, aggregate 71.06% respondents stated that the local governments of Ghana have ensured the rights of minorities, children, and disabled, but 24.52% respondents argued that the level of assurance of rights have not significant enough. On the other hand, only 4.21% of the total respondents directly stand against the statement as they stated that the local government failed to ensure rights; however, considering both primary and secondary data the conclusive remark in this issue is that the local governments have ensured the rights of minorities, children, and disabled in high extent.

Measures of Economic Governance and Indicators

The Central Bank of Ghana (BOG) have engaged to implement macro-economic tools for the sustainable development of the country, for instance, the aim of the monetary policy is to make sure price stability, increase employment rate, experience continuous growth, set interest rates independently, target inflation rate below 10%, face the challenge of uncertainty and volatility.

Many researchers have identified a close link between fiscal decentralisation and globalisation, for example, in general sense, former one means sub-national shares of total public sector revenues and expenditure, which propounded by influential political economists while globalisation indicates countervailing demands for the centralization of public spending and reducing the minimum efficient scale of politics. On the other hand, the researchers have identified similarities in the demand segment; however, the government of Ghana has not designed fiscal decentralisation considering the concept of open market economy, but it can be achieved as a natural consequence.

Corporate Governance under Fiscal Decentralisation

How enhanced is the local revenues generation as a result of the fescal decentralization in Ghana

About 83.32% respondents think that the fiscal decentralisation have enhanced the local revenues generation from corporate sector while 14.23% respondents stand against the opinion arguing that it does not enhance local revenues generation from corporate segment; therefore, from the view of the respondents it can argued that the concept of fiscal decentralisation have large impact on the revenue generation.

To what degree does the corporate governance in Ghana comply with the internacional standarts

About 82.89% respondents replied that the corporate governance in Ghana complies with the international standards and only 14.82% respondents stand against the opinion arguing that CG does not comply international standards; as a result, from the view of larger parts of the respondents, it can be said that the corporate governance in Ghana complies with the international standards.

Otoo and Asafu-Adjaye (2009, p.15) stated that Ghana experienced adverse impact at the time of global economic downturn while the national economy significantly integrated with global market, for instance, limited access to international credit, reduced foreign direct investment, remittances, aid and grants; in addition, it decreased earnings from tourism, and created unstable position in the employment sector.

On the other hand, the OECD countries had faced severe economic condition in 2008, which reduced the export income of Ghana significantly; moreover, there were other issues influenced business sector like gold price fell from $966 to $804, and FDI declined by 16% (about $4.4 billion) and reduced demand in the manufacturing companies at that time. However, Otoo and Asafu-Adjaye (2009, p.15) further stated that the Ghana Stock Exchange (GSE) had not significantly affected for economic downturn and the strong leadership along with resource management system helped them recovering from such economic pressure.

From the secondary data, it can be found that the government has already given more attention on the internet services and taken many initiatives to integrate ICT in the business sector for their customer services and reporting system, for example, regulatory framework enhanced communication and transactions segments. As the corporate business have already integrated ICT, it helped the country to develop the nation rapidly using technological advancement, such as, mobile telephone companies easily get 3G licence, which helped them increase number of subscribers. The aim was to scrutinise the extent to which the corporate business have integrated ICT for the development of service rage to the customers.

The constitution of Ghana ensured fundamental human rights, for instance, section 16 protects against slavery and forced labour, and section 24 lays down economic rights; in addition, the Labour Act No 651 of 2003 incorporates many provisions and rights for both the employers and employees, such as, remuneration policy, termination of contract, Hours of work, and prohibit discrimination. The aim was to assess to what extent the corporations under local governments comply with Labour Law; however, secondary data demonstrated that local and foreign employers are not concentrating on the provisions of existing labour law of Ghana; therefore, the central government should focus more on this issue.

Since, labour law included provisions for both the employees and employers, the corporations under local governments comply the provisions of labour law most of the cases particularly corporations try to follow the provision related with leave, working hours (maximum of eight hours a day), general health and safety conditions, equal pay for equal work without discrimination, and so on. In addition, this law has widen the opportunity for the employees to get remedies from the corporations under local governments for the violation of labour law; thus, it imposed obligation to ensure risk free workplace, provide financial facilities like pension, consider the length of notice of termination, take consent of the employees in special circumstance and so on.

However, the secondary data complained non-compliance issue, but the primary data represented different scenario; thus, 700 respondents selected that the corporations under local governments fairly comply with the Labour Law and only 57 respondents argued never comply.

The secondary data sources reported that the corporations under local governments provide health insurance and pension because the central government of Ghana have already passed several laws and regulation to ensure this issue, for instance, the National Health Insurance Scheme (NHIS) and other regulation for pension reform. However, the purpose was to know the view of the respondents regarding the performance of the corporations under local governments; here, the respondents provide mainly negative feedback, for instance, 700 respondents stand against the view and 293 respondents were strongly disagreed with the statement; and only 175 people among 1876 respondent have no opinion in this aspect.

Corporations under local governments have concentrated on the corporate social responsibilities though there is no comprehensive CSR policy, but it has many policies, and laws that together present the CSR structure in this country; however, these laws define minimum standards for growth of the private sector and the business performance particularly in the issue of environmental safety and public health. At the same time, Local Government Act 1993 provides the highest political and directorial power to District Assembly to guarantee the impressive growth; however, there are several regulatory bodies because it needs to consider different sectors with different issues, such as –

  • Environmental stewardship
  • Ensure right of the employees
  • Maintain health and safety standards
  • Ethical business practices (Atuguba & Dowuona-Hammond, 2006)

According to the survey report, the percentage of strongly agree, agree, disagree, strongly disagree, and prefer not to say are 11.14%, 41.52%, 23.77%, 13.86% and 8.85% respectively. The subsequent table and figure depict the corresponding results:

Do you agree that the corporations under local governments undertake their corporate social responsibilities

Among 1876 respondents, 52.68% respondents think that the corporations under local government evidence corporate social responsibilities while 37.63% respondents stand against the opinion and 8.85% respondents have no opinion in this aspect. As a result, the conclusive remark in this regard is that the corporations under local governments have evidenced CSR in some extent to explore the corporate attitude towards stakeholders; however, the standard of CSR framework is not sufficient to contribute in the economic and social welfare or to develop living standards, reduce abuse of economic power, and ensure human rights.

The multinational companies in Ghana have highly concerned regarding environmental pollution and conservation of the environment, for instance, it is essential for the corporations to concentrate on the environmental safety issue to implement any project in this country due to having the Environmental Assessment Regulations, The Energy Commission Act, Public Utility Regulatory Commission, Environmental Protection Agency (EPA) and so on.

However, the corporations under local governments are concerning with environmental awareness as these corporations are bound to follow minimum requirements to carry out business in Ghana, such as, corporations must provide Environmental Impact Statement, Environmental Management Plan, Environmental Action Plan, waste disposal practices, and many other documents to audit on the issues of environmental safety. Interestingly, the observation from the secondary data has matched with the primary data as out of 1876 respondents, 821 people agreed and 187 interviewees strongly agreed with the statement that the corporations under local governments concern with environmental awareness.

According to the survey report, the percentage of strongly agree, agree, disagree, strongly disagree, and prefer not to say are 9.97%, 43.76%, 23.51%, 13.59% and 8.21% respectively. The subsequent table and figure depict the corresponding results:

Do you agree that the corporations under local governments concern undertake environmental awareness

Out of 1876 respondents, aggregate 53.73% individuals agreed and strongly agreed that the corporations under local governments concern with environmental awareness. Meanwhile, 37.10% respondents disagreed and strongly disagreed that the corporations under local governments provide less attention on the environmental issues; however, 8.21% respondents selected the last option (prefer not to say anything in this regard; so, the conclusive remark in this regard is that the companies many not sincere in this issue and they should have to focus on environment.

According to the report Mensah, Aboagye and Addo (2003, p.27), Companies Code 1963 and GSE regulations had introduced numerous provisions to maintain international standard, but practically such provisions are outdated and has not revised yet considering the legal framework of developed countries. At the same time, it is very common to the Ghanaian that the corporations under local governments have charged with fraud for earning management (prepared false statement to generate more profits); therefore, President of the Institute of Chartered Accountants recommended to strengthening National Accounting Standards Board to scrutinise the accounting fraud and maintain accounting standard.

However, listed corporations under local governments are bound to disclose a half-yearly report to the GSE to give actual report about the companies; otherwise, the regulatory body have power to recruit professions in order to investigate the issue related with mismanagement and accounting fraud; in addition, the companies those are not listed also liable to submit accounts to the SEC. Therefore, secondary data shows that local government maintained particular accounting standard considering the above-mentioned facts, but the purpose was to identify the view of the people regarding this issue; however, 1022 respondents have agreed (or strongly agreed) with the statement and 654 disagreed (or strongly disagreed) with such view.

MLG (2008) reported that the government of Ghana is committed to decentralize because of the provisions of Constitution and existing legal framework; however, Ministry of Local Government concentrated on three issues to justify the implementation of this policy in near future. There were several reports on this issue developed by Ministry of Local Government, German Technical Co-Operation, Ministry of Finance and Economic Planning, and Canadian International Development Agency those assess the positive and negative factors of the fiscal decentralisation to take fruitful decision to develop the concept of fiscal decentralization in Ghana.

On the other hand, they further added that the prime factor to implement this strategy is pressure from international institutes, which are mostly beyond government control; however, MLG (2008) pointed out three factors to support the view of fiscal decentralisation, such as, to strengthen and develop local democracy, promote local social and economic development and decrease poverty. The central government of Ghana had realised that centralise power may create difficulties to meet all of the challenging needs of different areas since local politicians are demanding more independence and to help them on “national economic development strategies”; as a result, fiscal decentralization is one of the most significant issue of the decentralisation process at this moment.

However, the entire process of decentralisation is the matter of threat while it considered the success of implementation in global context, for instance, decentralisation could actually make the matters worse in case of developing countries while local government suffer financial crisis or fail to perform for increasing corruption (OECD, 2004, p.14).

The survey report shows that the percentage of strongly agree, agree, disagree, strongly disagree, and prefer not to say are 10.82%, 43.66%, 22.01%, 12.85% and 9.54% respectively. The subsequent table and figure depict the corresponding results:

Do you agree that the corporations under local governments have particular accounting standard

Among 1876 respondents, 54.48% respondents think that the corporations under local governments have particular accounting standard while 34.86% respondents stand against the opinion and 9.54% respondents have no opinion in this aspect. As a result, the conclusive remark in this regard is that the corporations under local governments have particular accounting standard, but it is not include adequate implementation process; thus, incompatible with the international standard considering the primary data.

The secondary data sources like the World Bank reported that the corporations under local governments have protected shareholder’s rights, for instance, they have right to take part in fundamental decisions, convey or transfer shares, AGM rights, disproportionate control disclosure, participate and vote in general shareholder meetings to Elect and remove board Members, obtain relevant and material company information. In addition, the shareholders’ rights also include the exercise of ownership rights, and consult with each other’s, share in profits of the corporation, right to vote for authorising share capital, opportunity to ask the board questions at the general meeting, minority protection from controlling shareholder abuse and they have right to treat equally (all shareholders of the same series).

However, the codes and GSE regulations have already incorporated shareholder’s right, but the purpose was to know the perception of the people regarding the extent to which the corporations under local governments have protected such right; interestingly, 818 respondents have provided positive feedback and 202 respondents strongly agreed with the statement.

According to the survey report, the percentage of strongly agree, agree, disagree, strongly disagree, and prefer not to say are 9.22%, 41.90%, 22.49%, 13.38% and 11.83% respectively. The subsequent table and figure depict the corresponding results:

Do you agree that the corporations under local governments have protected shareholders rights

Among 1876 respondents, 51.12% respondents think the corporations under local governments have protected shareholder’s rights whereas 22.49% respondents stand against the opinion and 13.38% strongly disagreed the statement arguing that the corporations have not maintained standard form of rights that can bring a meaningful fiscal decentralisation. As a result, the conclusive remark in this regard is that the central government of Ghana should change the provisions of the regulation to control the corporations under local governments since they are not protecting shareholder’s right in large extent.

Mensah et al. (2003, p.27) reported that the Companies Code 1963 and GSE Listing Regulations imposed duty on the board of directors to manage the company, but it has not mentioned anything regarding the size of the board, and requisite level of competence and integrity; in addition, it included no obligation for appointing independent directors to control the companies. At the same time, the existing appointment process give the opportunity to hold two office by the same person though it mentioned minimum requirement to select as a director and other provisions create imbalance between executives and non-executive directors; however, the code and regulations mentioned it clearly that directors have to work with good faith.

There are many problems incurred in the appointment process, which increases corruption due to lack of accountability, for instance, use funds and other resources of the companies for personal purposes, pay bribes ignoring codes, and ineffective role of the controlling process. However, the aim was to assess the extent to which the corporate governance framework has ensured the board of director’s appointment and accountability because secondary data show that the boards are not accountable in case of financial controls while the code introduce no audit committee of the board though GSE Listing Regulations incorporate this issue.

According to the survey report, the percentage of strongly agree, agree, disagree, strongly disagree, and prefer not to say are 8.80%, 32.41%, 37.26%, 16.95% and 3.41% respectively. The subsequent table and figure depict the corresponding results:

To what degree does the corporate governance framework ensured the board of directors in the MMDAs appointment and accountability

Out of 1876 respondents, 78.47% respondents pointed out that the corporate governance framework has ensured the board of directors’ appointment and accountability while 16.95% respondents stand against the opinion arguing that there are huge gaps in case of appointment of the board of directors since they have no accountability. As a result, the conclusive remark in this regard is that the corporate governance framework of Ghana has ensured international standard in some extent, but still there are many problems incurred with remuneration policy, independent directors, and accountability issues; in this context, it should concentrate on these issues more carefully.

Socio-Economic Development Indicators

In order to proceed with this part of the survey questionnaire for assessing socio- economic development indicators, it was highly essential for the researcher to put forward questions with an intention of finding out whether or to what extent, the fiscal decentralisation process in the country has provided national development agenda for capacity building and whether it has gained self-reliance. By assessing the data received from the respondents would be greatly helpful for the researcher to identify whether the people of the country, from a general point of view, keep reliance of the entire process of fiscal decentralisation. In addition, it would also assist the researcher to get a clear idea of whether they (the people of the country) think that this process is helping the country as a whole in terms of countrywide progress plans aimed for constructing competence and creation of self- sufficiency.

After assessing all the answers received from the survey, it has been noted that 213 people have strongly agreed to this proposed idea, 843 people have agreed to this, 469 people have disagreed to this, 174 respondents have strongly disagreed, where as 161 people have preferred not to say anything regarding this matter. To state this in percentage, 11.35 per cent people have strongly agreed to this proposed idea, 44.94 per cent people have agreed to this, 25.00 per cent people have disagreed to this, 9.28 per cent people have strongly disagreed, where as 8.58 per cent respondents have preferred not to say anything regarding this matter. The subsequent table and figure depict the corresponding results:

Would you agree that the fiscal decentralization process in Ghana has delivered national development agenda for capacity building and gained self-reliance

The result shows the fact that majority of the surveying population has selected agree and disagree options of the survey form. However, most of the people have disagreed to the proposed idea, which means that the country still needs significant developments as far as fiscal decentralisation process is concerned.

At this portion of the research survey, the researcher has made an open ended approach to the respondent group by clearly asking them whether or not, in their respective views, the fiscal delegation procedure in the country have intended to deal with people’s needs. To state this differently, this will also assist the research survey by pointing out that to what extent people of the country are apparently satisfied of dissatisfied with the fiscal decentralisation procedure in the nation.

In due process of finding out the key concern, there has been a mixed set of responses received from the part of the respondents and there have been notable parts of the surveying population who have not comment anything in this proposed idea. This may be because of the fact that most people do not want to engage in exchange of any views, which are associated with the monetary policy-making of the country or to those, which are politically motivated. There may have been a hidden fear among the ordinary population about the fact that by answering this question or exchanging their views, they may come to the notice of the respective local governments or the concern ministries.

However, by assessing the survey forms closely, it has been notable to argue that 11.51per cent people have strongly agreed to this proposed question, 46.06 per cent people have agreed to this, 22.65 percent people have disagreed to this, 12.42 per cent people have strongly disagreed, where as 6.34 percent respondents have preferred not to say anything regarding this matter. This factor is clearly visible in the graphical representation below –

Would you agree that the fiscal decentralization process in Ghana have aimed to address peoples nedds

Even though there has been a notable part of the respondent group who have disagreed to the proposed question, still it is clearly visible from the figure above that majority of the people of the country has agreed to the point that the fiscal decentralisation process in Ghana has aimed to address people’s needs.

One of the most important aspects of the questionnaire, in terms of assessing the improvement and achievement of the process in the country as a whole, was to determine the perspective of people regarding the impact of fiscal decentralisation on the degree of dependence of local governments on external financing. The researcher has put this question forward with an intention of finding out the extent to which the fiscal decentralisation process has been able to lower the reliance of local administrations on external financing or foreign funds. By examining the feedbacks from this portion of the survey, it has seemed to be much easier for the researcher to discover that whether or not the local administrations has been able to get more stronger by means of fiscal decentralisation programmes carried out throughout the country by the government.

A more financially stronger, dynamic, forceful, and organised local administration would mean that there would be no requirement for these governments to ask fund from central government. In addition, it would be greatly helpful in sense that in most of the cases, the central government will also not have to ask for foreign funds from powerful nations, or international monetary organisations like IMF (International Monetary Fund) or even World Bank.

On the other hand, by assessing the survey forms closely, it has been notable to argue that 8.53 per cent people have selected fully decreased dependency option, 33.90 per cent people have selected mostly decreased dependency option, 37.31 per cent people have selected fairly decreased dependency option, and 15.99 per cent people have selected less decreased dependency option. However, 3.25 per cent respondents have selected never decreased dependency option. The subsequent table and figure depict the corresponding results:

To what extent has the fiscal decentralization decreased the dependence of local government on external financing

It is apparently notable from the research survey that the majority of the surveying population has selected the mostly decreased dependency option which indicates that to a large scale, the fiscal decentralisation process carried out throughout the country by the government has not been able to strengthen local administrations financially.

In this part of the research, the researcher had tried to find out extent to which the fiscal decentralisation procedure of the state has augmented competence for public service delivery in the country. It is important to note that public service delivery is one of the essential aspects by means of which ordinary people in the country judge the extent to which the government (both central and local), has been able to rule successfully, strongly, and fruitfully and whether or to what level people can keep trust on them for the upcoming term. As a result, it is very important for the respective local governments to augment competence for public service delivery in the country by means of proper fiscal decentralisation procedure.

The respondents of the survey were presented with five options, which were fully increased, mostly increased, fairly- increased, less increased, and never increased. It is notable that 7.94 per cent people have selected fully increased option, 31.56 per cent people have selected mostly increased option, 42.43 per cent people have selected fairly increased option, 14.55 per cent respondents have selected less increased option, and 2.56 per cent people have selected never increased option. Statistically, 149 people have selected fully increased option, 592 people have selected mostly increased option, 796 respondents have selected fairly increased option, 273 people have selected less increased option, and 48 people have selected never increased option. The subsequent table and figure depict the corresponding results:

To what extent has the fiscal decentralization increased efficiency for public service delivery

Most of the respondents of the research survey have noted that fiscal decentralisation has increased efficiency for public service delivery from an overall point of view. The majority of the surveying population has pointed out that it has mostly increased or fairly increased the efficiency for public service delivery. However, a few numbers of people from the total population were still present who stated that the efficiency for public service delivery has not increased by any means through fiscal decentralisation.

At this portion of the research survey, the researcher has made an undefined approach to the respondent group by plainly asking them whether or not, in their personal views, the fiscal delegation procedure in the country have raised the level of progression in health sector as a whole. To point this out in a different way, this issue will also aid the research survey by pointing out that to what extent individuals of the nation are actually pleased or displeased with the fiscal decentralisation procedure in progression of the healthcare sector. The interviewees of the survey were presented with five options, which were highly progressed, mostly progressed, fairly progressed, less progressed, and never progressed.

It is notable that 8.80 per cent people have selected highly progressed option, 32.09 per cent people have selected mostly progressed option, 40.35 per cent people have selected fairly progressed option, 13.86 per cent people have selected less progressed option, and 3.89 per cent people have selected never progressed option. Numerically, 165 people have selected highly progressed option, 602 people have selected mostly progressed option, 757 people have selected fairly progressed option, 260 people have selected less progressed option, and 73 people have selected never progressed option.

What is the level of progression in health sector due to fiscal decentralization

The result shows the fact that most of the interviewees of the research survey have noted that the fiscal decentralisation has amplified level of progression in healthcare sector. The mainstream of the surveying population has identified that it has mostly progressed or fairly progressed level of development in healthcare sector. Yet, some of the people stated that healthcare sector has not improved by any means through fiscal decentralisation.

The level of progression in education sector due to fiscal decentralisation is also an important aspect. In terms of measuring the development and attainment of the fiscal decentralisation procedure in the nation’s education sector as a whole, it is very vital. The researcher has include this idea with an intention of finding out the extent to which the fiscal decentralisation process has been able to enhance the education sector of the country in terms of standardisation of the edification structure, improvement of the learning resources and materials, as well as advancement of the infrastructures of the lecture rooms.

The key concern of the research also remained on whether or not the fiscal decentralisation procedure in the nation has been able to enhance the educational institutes as a whole. Through investigating the feedbacks from this segment of the survey, it has appeared to be much easier for the researcher to find out that whether or not the local governments has been able to standardise the edification structure by means of fiscal decentralisation programmes carried out throughout the country by the government. A strapping, active, powerful, and well thought-out edification structure would mean that there would be more attention given to the young people in the country for developing their skills and knowledge, which would in turn help the country’s economy and overall development in near future.

Prior to 1980, the alarming corrosion of public-utilities in education, health, and water sectors revealed the drawbacks of federal administration; however, after fiscal decentralisation programmes, this corrosion has particularly lowered mainly in educational sectors due to the strict governance and proper investments of the local governments in the affected areas (Egbenya, 2010). It is notable that 10.02 per cent people have selected highly progressed option, 30.86 per cent people have selected mostly progressed option, 41.58 per cent people have selected fairly progressed option, 13.17 per cent people have selected less progressed option, and 2.77 per cent people have selected never progressed option. The feedbacks receive from the part of the respondents during the research survey is processed and graphically represented below –

What is the level of progression in education sector due to fiscal decentralization

The result shows the fact that most of the interviewees of the research has selected the mostly progressed and fairly progressed options indicating that from the point of view of the majority of individuals of the country, there has been substantial level of progression in education sector after carrying out massive fiscal decentralisation programme throughout the country. As a result, even though there has been a few numbers of people to state that sufficient enhancement has not been made in the educational sectors, this does not affect the summation of the results in anyways owing to the fact that the number of people thinking differently was greatly high.

Females are also a crucial part of a nation’s economic progress. As such, their education also forms a crucial part of the government policies. The progression of female education due to fiscal decentralisation can be considered a plus point. By including question pertaining to this idea, the researcher will have a clear idea about the provisions for female education in fiscal decentralisation. The responses from the part of the respondents at this part of the survey will significantly help the progression of the research by identifying the extent to which the different types of local administrations has been able to develop female education in their respective areas by means if proper investments in infrastructure, edification methods and approaches. In addition, besides of judging all these, it would also judge the actions taken by the local administrations in terms of suitable investments in creating awareness among public to encourage female education as well as convincing rural girls to engage in schooling activities by means of their funds accumulated because of the fiscal decentralisation programme throughout the country. After conducting the survey, the researcher has noted that 9.49 per cent respondents had selected the highly progressed option, 30.01 per cent respondents had selected the mostly progressed option, 36.83 per cent respondents had selected the fairly progressed option, 15.83 per cent respondents had selected the less progressed option, and 3.36 per cent respondents had selected the never progressed option. The answers obtained from the part of the interviewees during the research survey is sorted out and graphically symbolised below –

What is the level of progression in female education due to fiscal decentralization

Vast number of the respondents of the research survey has pointed out that fiscal decentralisation has augmented the level of progression in female education. The mainstream of the surveying population has pointed out that it has mostly increased or fairly increased the quality of female education. On the other hand, some respondents stated that the quality of female education has not developed yet.

The questionnaire also included questions that dealt with the aspect of success of integration of fiscal decentralisation in Ghana in terms of working for the society for building mass awareness and health programmes by means of huge investments in different types of programs like advertisements in TV, newspaper, billboards, hoardings, as well as other forms of awareness agendas and public relations.

Fighting against AIDS and HIV is also an important factor for the local government to decrease ill health- related problems in the neighbouring communities. In answering this question, the respondents have provided a mixed set of reactions; however, most of the people have assured that the local government has been able to use fiscal decentralisation in Ghana in a proper manner in order to ensure appropriate management of funds and resources in the localities for reducing awful concerns like AIDS and HIV. It is remarkable that 13.59 per cent people have selected highly progressed option, 29.21 per cent people have selected mostly progressed option, 34.65 per cent people have selected fairly progressed option, 15.99 per cent people have selected less progressed option, and 4.64 per cent people have selected never progressed option.

Statistically, 255 people have selected highly progressed option, 548 people have selected mostly progressed option, 650 people have selected fairly progressed option, 300 people have selected less progressed option, and 87 people have selected never progressed option. The snapshot of the key feedbacks received during the conduction of the research survey is illustrated in the chart below –

What is the level of progression to fight against AIDS and HIV by integrating fiscal decentralization

Huge number of the respondents of the research survey has pointed out that fiscal decentralisation has improved the level of progression to fight against AIDS and HIV. The majority of the interviewees had noted that it has mostly improved or fairly improved the condition of such life- threatening diseases from the neighbouring communities.

Common services like food, water, shelter, and sanitation have also progressed as a result of fiscal decentralisation. By way of judging the level of progression on common service sector like food, water, shelter, and sanitation, it would be helpful for the research survey to come to an inference regarding the overall social improvement achieved by the process. The answers from the part of the interviewees at this segment of the survey will considerably assist the development of the research by recognising the extent of communal development of local administration in their region, which would in turn aid the research to discover the scope, nature, or tactical aspects undertaken by those governments to achieve success in those areas.

In order to sum up the feedbacks, it is essential to state that most of the respondents of the research survey has pointed out that fiscal decentralisation has provided overall social improvement by way of progressing the levels common service sector like food, water, shelter, and sanitation. However, some of the respondents have provided different views in this regard.

In order to find out whether or to what extent people’s participation in the development initiatives has augmented due to fiscal decentralisation process in the country, the researcher included questions pertaining to this idea as well. This is for the reason that in some conditions, the participation of the people in their respective areas, to a great extent, helps the development initiatives to proceed in a right way by allowing democratic practices to come forward in an excellent manner.

The more the people from the different rural or urban areas participate, the greater will be the prospect for the development initiatives to gain proper velocity in terms of time required to achieve the goal, together with the attainment of ordinary people’s expectations in conducting of the development works in the correct track. Apart from upholding democratic practices, an increasing degree of people’s participation in the development initiatives will also mean an awesome outcome as far as overall advancement, growth, and economic encroachment of the country is concerned. As a resulting effect, all the respondents have filled up this question by selecting five options, which included the scales like highly, mostly, never, less, and fairly.

It has been considerably prominent to note that 10.02 per cent people have selected highly increased people’s participation option, 33.64 per cent people have selected mostly increased people’s participation option, and 34.86 per cent people have selected fairly increased people’s participation option. On the other hand, 16.90 per cent people have selected less increased people’s participation option, and 2.67 per cent people have selected never increased people’s participation option; this has been shown this figure below –

To what extent has the fiscal decentralization increased peoples participation in the development initiatives

After summing up the answers of this question, it can be argued that people’s participation in the development initiatives has actually augmented the fiscal decentralisation process in the country. As a result, this is a positive factor for the country’s general progression, expansion, and fiscal improvement.

This was also an important question from the research questionnaire, because in this question, the surveyor will be able to come to know if all the stakeholders are participating in decision- making processes of the fiscal decentralisation or not. By evaluating the intensity of improvement on participation of stakeholders, it would be supportive for the survey to get to know about the involvement and cooperation of the public from the local communities, local government, and all the members of parliament, concerned ministries, and other stakeholders with the process of decentralisation. The respondents of the survey were presented with five options, which were fully ensured, mostly ensure, fairly ensure, less ensure, and never ensure.

The results very evidently specify the fact that most of the respondents of the research survey are quite happy with the level of stakeholders’ participation in decision-making process of the fiscal decentralisation around the country. As a result, a fiscal decentralisation that has more participation from the stakeholders such as the public, communities, local government, parliamentary members, related ministries, etc, is likely to succeed in many aspects from the economic point of view.

This question has dealt with a different issue in comparison with the other questions that have been put forward to the respondents in part five of the research survey. Whilst most of the questions in this segment had concentrated on asking the surveying population about the success of incorporation of fiscal decentralisation around the country, this question had indirectly asked the interviewees a distinctive thing. That is, whether, because of the rising taxation rate as an outcome of the fiscal decentralisation, they are feeling it disturbing to sustain in harsh economic environments and rising prices of consumer goods.

Even though in the other questions, most of the respondents had agreed and pointed out that the fiscal decentralisation is doing well in achieving its goals as a whole, looking at the responses in this question particularly, it seems that the loopholes and dilemmas of the system and emerging out quite forcefully. The respondents were asked to select the options like strongly dissatisfied, mostly dissatisfied, fairly dissatisfied, less dissatisfied, and never dissatisfied. It has been apparently stated by the public that they are nearly hacked off with amplification in taxation rates in the country due to the fiscal decentralisation.

The result shows the fact that even though there are certain features of the fiscal decentralisation that the people are appreciating to some extent; the loopholes such as rising tax rates are creating significant distresses among them because of unstable economic condition. A few people stated that rising tax rates are not creating any problem for them; however, the percentage of such population was substantially lower.

One of the questions also dealt with an alarming aspect of fiscal decentralisation process; this is because it asked the respondents regarding their view on an issue the can have close links with the concept of fiscal decentralisation. Corruption is always a worrying factor, and particularly when it comes to fiscal decentralisation, a number of academics suggest that there are more chances of this in a decentralised system. As a result, the researcher put this question forward to the respondent in order to get very clear response regarding the performances of the respective local governments in taking suitable measures for corruption prevention. However, it has been noticed that the respondents have provided a mixed set of reactions in response to this question. There have been many of them who thought that corruption has been reduced.

It is arguable that the results indicate that the local governments have taken satisfactory measures for corruption prevention; however, even though people who think this were in majority, still a large part of the respondent groups have noted that corruption reduction has not been possible. As a result, it is important for the local governments to keep such public reactions in mind and work more efficiently and ethically in order to take apt steps for corruption prevention.

International organisations, like World Bank and WTO, have created extra pressure on the central government considering the enormous advantages of decentralisation, but the institutes have overlooked the disadvantages for many reasons, such as, political interest on the nation, implementation of the millennium development plan and benefit of the poor people. However, fiscal decentralisation is the process, which can create many social, political, economic or other related problems, for instance –

  • People are the main power to develop a nation as they are taxpayers, but they can create no pressure on the local administration regarding resource management due to lack of information and jurisdictional gap;
  • At the same time, the attitude of the local politicians has changed (they can be more corrupt than national politicians can) while they enjoy unlimited power in case of decision-making and prepare their own budget;
  • Local governments have limited knowledge about the resource management system, which can make worse a central government’s aptitude to deal with “structural fiscal imbalances”.
  • Increased mobility may decrease total service range, which in fact local in nature;
  • In addition, fiscal decentralization can play vital role where the local government has strong capacity to manage resources and impose monitoring over the implementation process, such situation is rare in the developing countries like Ghana; therefore, it becomes really difficult to coordinate the function of the central government and not the sub national government;
  • On the other hand, the people of the poor areas will leave the place to find out the place where the tax structure is reasonable for them, which creates social imbalance in some extent;

Joint effort is absence in the competitive market for various reasons, for instance, different budget structure for different areas, limited resources to implement projects.

The most critical factors planning and budgeting cycles encompass different responsibilities and accountability set in different legislation, for instance, NDPS Act 1994. Act 480 describes the framework of budget for the national level and Section 92 (3) of Act 462 specifies budget for district level. As a result, the local government as well as national government have scope to work on this field under the statutory provisions; however, the budget plan for national level will prevail over other decisions while local government needs to approve their budget plan for regional and local levels by the appropriate authority.

At the same time, there are some strict provisions for the local governments, which they are bound to follow to pass their plan by appropriate authority, such as, the terminology of the budget would be simple and specific to understand and they must not include vague terms. In addition, they have to express required deadline for particular projects along with the budget and implementation procedure; as a result, central government can assess the output of the programs at the time of evaluation of the success and development of the projects in terms of total costs. On the other hand, district plans encompass a medium-term viewpoint that would not over five years and these plans must include annual action plans along with the reflection of expenditure of each fiscal year.

Here, it is important to mention that local government concentrates on several issues to prepare district plan, for instance, the recommendation of stakeholders, such as, NDPC, the Ministry of Finance, the Sectoral Ministries, and so on. Similarly, they are responsible to coordinate the suggestion of the Ministry of Local Government and Rural Development, the Region; however, after completing the preparation, they must publish the district plan and the annual budget to inform general people about their program costs.

Summary, Conclusions & Recommendations

Recommendation

This study has essentially demonstrated the insight of the assertion of fiscal decentralisation and its implication for the local economic development of Ghana that has been experiencing by the decentralisation drives of the country for the last two decades.

The implementation of fiscal decentralisation in Ghana has gone through several regulations and legislative reformations made by the parliament up to 2012 to ensure a meaningful fiscal decentralisation aimed to carry out a sustainable development at all regions with fiscal autonomy. This dissertation following its long research with the fiscal decentralisation and local economic development in Ghana would like to present the following recommendations to conduct that would generate harmonised fiscal order for the regions with right alignment at the local governance –

  • During the budget discussion with different governmental wings, professional groups, chamber of commerce the MoFEP (2012) conducts many meetings with them; the ministry follows discriminating policy with the local governmental wings like MMDAs whom the ministry never call to share their budget thinking for Ghanaian that throws the entire budget preparation process under reasonable doubt. The existing budgetary process in Ghana has failed to integrate the MMDAs option in the national budget although they serve around 7.5 % of the national revenue, they have no accommodation in the process, and there is no particular guideline for the local governments regarding the budget, but only guided to generate the supplementary budget. Thus, this recommendation urge to ensure the participation of the MMDAs representatives at the national and local level of governments where the Ministry of Finance would provide right emphasis on the local governments to prepare national budget.
  • Still in Ghana the ministry of finance demonstrating doubtful evidence of less priority to the local governments without any direction to the district budgets where a little significance at the guidance of using DACF3 where the regional levels are homogeneously integrated and this is a major limitation of the fiscal decentralisation drive in the country. This research would urge the budgetary committee of the MoFEP to integrate a homogeneous policy to remove all confusions about their budget preparatory process by incorporating all local governments from the elementary stage to the implementation system that would encourage the local communities for their spontaneous participation.
  • The budget execution procedure of the local governments is not yet corresponds in a standard form particularly for the funds generated from the local sources, which the MMDAs spend for miscellaneous purposes those are not mention into their annual budget; thus, there are serious lickings of financial management and control that ultimately encourage corruption at the local level. Similar gaps of financial management has evidenced with the contributions made by international NGOs for the MMDAs where the development partners urge to separate accounts for every projects that generates huge scope for financial mismanagement by the local administration abolishing the strong evidence of transparency and accountability. Thus, this study emphasised to introduce transparency and accountability at the MMDAs for their annual budget preparation and to the implementation by introducing accounting information system with free flow of financial data both for national and district level.
  • This study also identifies the procedural gaps in the national development plan that put into practice in every four years aligned with bureaucratic red tape, burdensome process, and expensive practice with time-consuming implication where the different public departments, like community development, education, and public health sectors have to face highly worse situation for not to having adequate financial resources. As a result, the national policy fails to execute the development projects timely and huge financial resources remain unutilised at the central wings of the related departments, which is another major restraint of the national development plan and policy formulation while the constitutional provision kept provision to arrange policy outline by two years approved by the parliament. Meanwhile the policy formulation by the central government and the allocation of resources are not harmonised for the local level that required immediate modification in right alignment comprisable with the yearly action plans of MMDAs; thus, this study would suggest the policymakers and legislators to take district action to remove such obstacles without wasting time.
  • To harmonise the practice of fiscal decentralisation at the local, regional, and central level the MoFEP needed to acquire enthusiastic concentration for budgeting and planning among the all level of governance with exact representation of the local agencies to assess and review the district plans both from the physical and financial consideration to produce most effectual public service delivery. The concerned proposals received by the MoFEP from the district level required to have particular format that could be easily checked by the budgetary committee, such format of proposal needed to supply by the MoFEP defining clear process and guidance for assessment, although the NDPC is currently producing some guidance in this regard, but not sufficient to explore right outcomes. Thus, this study would recommend the NDPC to accelerate the action to formulate a long-term national development strategy for ten to twenty years instead of the existing four years planning that would ultimately lead the country to a sustainable development path with periodic assessment and review scope to alteration and modification.
  • It has evidenced throughout the study that there are huge gaps of the effectiveness of the human resources engaged to implicating fiscal decentralisation in Ghana, where a lot of indicatives are hampering the development process involving with corruption and lack of transparency, thus it is essential to conduct speedy step to develop human resource where special budgetary allocation required. There are many financial scandals explored in the fiscal decentralisation drive of Ghana and has strongly criticised nationally and globally, but there is no remarkable initiatives to prevent such scope of fiscal mishaps. Although the skill development initiatives has already explored through the Local Government Service Act-2003, but not sufficient to ensure the accountability of that human resource engaged for fiscal decentralisation, thus, it is emergence to introduce a powerful anti-corruption body that would essentially investigate different fiscal scandals and ensure capital punishment for the corrupt officials.
  • The independence of the central bank in Ghana has established through its legislative framework, but the evidence of failure to establish control over the continuously increasing inflation in the country and it consequential evidence illustrates that the independence of the Bank of Ghana is just a matter of propagation without any appeal to the fiscal decentralisation drive. In Ghana the rate of inflation higher than the desired level has reconcile the wage at a standard level with lack of monetary shock and employment gain, the failure to reach an optimistic rate of inflation troubled the government to maximise welfare of employee with balancing wage while implication of conservative monetary policy could resolve the dilemma of inflation bias. Thus, this study would suggest to exploring more independence of the Bank of Ghana to implementing more realistic fiscal and monetary policy to rescue the central bakers free from political and external influences, which is essential for a meaningful fiscal decentralisation
  • It is clear that the mainstream inspiration for fiscal decentralisation is to ensure effective public service delivery to the local communities by the local authorities by ensuring public participation, the political economy of Ghana demonstrated that the stands of donor agencies and development partners are conflicting with the spirit of central government while local communities are eager for local development. The foreign aid aimed to encourage fiscal decentralisation in Ghana have generated more dilemmas than exploring good governance due to the gaps among the donors, central government, and local institutes with shifting attributes of foreign aid for decentralisation where none of the parties bothering for national interest and the motto of delivering effectual public service left behind. Thus, this study urged all involved parties in the fiscal decentralisation drive of Ghana to come at a wider platform that empower the local governments to deliver public services with increased efficiency at the local level and enhance transparency and accountability of the local agencies with exact scenario of based on the real life experience gathered for past decades.

Conclusions

This research finding identified the significance of implementing fiscal decentralisation in Ghana, the ongoing implementation process, its gaps between the theory and practice, and enormous contradiction among the objectives local governments and the central government of Ghana while the basic intention of this type of decentralisation is to provide fiscal autonomy to the local governments.

Under the present fiscal decentralisation, it remains a critical gap in the introductory phase of the plan preparation that demonstrates incapability of the local institutes to formulate and timely submit the harmonised plan to NDPC, such circumstances obviously illustrate the gaps between local and central level linking with the attributes of insufficient funding along with delayed guidance. The multiplicity and district level development plans largely obey the rules and policy direction of the strategies of the central development plan along with the guiding principle provided by NDPC where the majority of the sector wise plans have different setting up scheduling for the necessary resource mobilisation to put into practice of meaningful fiscal decentralisation.

Throughout the research, it was clear that there is a hidden tendency in the fiscal decentralisation of Ghana to sustain and prolong the central influence in different local institutes that would ultimately upset the basic objective of the decentralisation and spoil the achievements that have already generated huge prospects to the local communities. The ongoing fiscal rules in Ghana demonstrated that the central authority has the propensity to force with fiscal discipline of the subordinate governments that impose strict boundary to the capabilities of the local governments to implement the general prerequisites of finance public at the local government like MMDAs with parallel taxing including harmonised financial management.

The local governments of Ghana are not well organised too to encounter with the central pressure; consequently, their lack of protest to gaining fiscal autonomy continuously hampering the economic prospects from grassroots level, but the emergence of enhanced fiscal autonomy has guarded by market forces like lower level capital markets where scarcity of prospective buyers for sub-national debts still exists.

At the same time, the practice of fiscal decentralisation in Ghana illustrated that the fiscal decisions of the decentralised bodies would diminish by the macroeconomic management of the central government due to debt crises and disproportionate borrowing of regional governments that generate higher degree of macroeconomic imbalance beyond tolerance and that spread out fiscal and monetary mismanagement in the country. The monetary policy Ghana engaged to formulate the control over the extent of fiduciary money supply, manage rate of interest, price level, inflation, rate of exchange along with expansion of aggregate income with the aimed to provide micro-economic stability where steady macroeconomic presentation uphold the monetary policy as a tool of central control integrating regional aspects in the implementation process.

The coordination among the taxation policies by the sub-national governments and their endeavour to bring balanced budgets ensuring price stability along with simultaneous action by the multiple levels of governments to generate positive externalities through expenditure reduction and increased local tax without influencing voters, which requires commitment from all political parties to unite at a single viewpoint for fiscal decentralisation. Moreover, the fiscal decentralisation of Ghana urges to establish enthusiasm of all political parties for not to using it as a weapon of formulate patrician influence to explore own party influence at local level, and generate national unity for not to interfering to reduce political costs, central governmental bailouts, diminish public sector deficits along with exploring inflation.

References

Abdulai, A. (2009). Political Context Study – Ghana. Web.

Adablah, C. (2003). The Role of Civil Society In Decentralised Governance For Poverty Reduction: The Experience In West Africa. Web.

Adei, S. (2010). Public Lecture Report. Web.

Ahmed, I., Marcoux, C., & Tierney, M. (2010). Foreign Aid in Hard Times: The Political Economy of Aid Effort. Web.

Akoaso, H. (2005). Pension Scandal: ¢83 Billion Siphoned. Web.

Akramov, K., & Asante, F. (2009). Decentralisation and Local Public Services in Ghana: Do Geography and Ethnic Diversity Matter? Web.

Akrani, G. (2011). What is Public Expenditure? Meaning, Definition. Web.

Amu, N. (2000). The Role of Women in Ghana’s Economy. Web.

Asatryan, Z. (2010). Fiscal Decentralisation and Economic Growth in OECD Countries: A Bayesian Model Averaging Approach. Web.

Atuguba, R., & Dowuona-Hammond, C. (2006). Corporate Social Responsibility in Ghana. Web.

Bahl, R. (1998). Comparative Federalism: Trends and Issues in the United States, China, and Russia. Web.

Bahry, D. (2004). The New Federalism and the Paradoxes of Regional Sovereignty in Russia. Web.

Barro, R., & Gordon, D. (1983). Rules, Discretion and Reputation In A Model Of Monetary Policy. Web.

Barter, S. (2009). The Dangers of Decentralisation: Clientelism, the State, & Nature in a Democratic Indonesia. Web.

Bhakti, I. (2009). The Transition To Democracy In Indonesia: Some Outstanding Problems. Web.

Bodman, P., Heaton, K., & Hodge, A. (2009). Fiscal Decentralisation and Economic Growth: A Bayesian Model Averaging Approach. Web.

Boone, P. (1995). Politics and the Effectiveness of Foreign Aid. Web.

Bourdieu, P. (1986). The forms of social capital. Web.

Braathen, E., & Hellevik, S. (2008). Decentralisation, Peacemaking, and Conflict Management: from Regionalism to Municipalism. Web.

Brancati, D. (2005). Decentralisation: Fuelling the Fire or Dampening the Flames of Ethnic Conflict and Secessionism. Web.

Byrne, S., Mirescu, G., & Muller, S. (2007). Decentralisation and Access to Justice. Web.

Campbell, H., Bodman, P., & Hodge, A. (2009). Fiscal Decentralisation, Macroeconomic Conditions and Economic Growth in Australia. Web.

Catcora, P. R., Sullivan M. G., D’Souza, C., Taghian, M., Weerawardena, J., Graham, J. L. (2012). International Marketing, 2nd edition. London: McGraw-Hill.

CIDA. (2002). Ghana Fiscal Decentralisation Project: Design Report. CIDA Project 400/1878, 66(1).

Cohen, L., Manion, L., & Morrison, K. (2007). Research Methods in Education. 6th edn. New York: Routledge.

Colm, G. (1937). Public Revenue and Public Expenditure in National Income. Web.

Cornell, S. (2002). Autonomy and Conflict. Web.

Crawford, G. (2004). Democratic Decentralisation in Ghana: Issues and Prospects. Web.

Crook, R. (2003). Decentralisation and Poverty Reduction in Africa: The Politics of Local–Central Relations. Web.

Dafflon, B. (1996). Fiscal Decentralisation. Web.

Dege, C. (2007). Joint Government of Ghana and Development Partner Decentralisation Policy Review. Web.

Deshpande, V., & Donohue, K. (2000). An Empirical Study of Service Differentiation for Weapon System Service Parts. Web.

Ebel, R. & Yilmaz, S. (2002). Concept of Fiscal Decentralisation and Worldwide Overview. Web.

Egbenya, G. (2010). The effectiveness of decentralisation policy in Ghana: A case study of Komenda-Edina-Eguafo-Abrim (KEEA) and Abura –Asebu- Kwamankese (AAK) districts in Ghana. African Journal of Political Science and International Relations, 4(1), 013-028.

Eroğlu, O., & Yavuz, A. (1995). The Role of Foreign Aid in Economic Development of Developing Countries. Web.

Everson, M., Majone, G., & Schout, A. (1999). The Role of Specialised Agencies in Decentralising EU Governance. Web.

Faber, E. (2011). The Motives behind Development Aid: an interdisciplinary study. Web.

Galiani, S., Gertler, P., & Schargrodsky, E. (2004). Helping the Good Get Better, but Leaving the Rest Behind: How Decentralisation Affects School Performance. Web.

Garblah, O. (2003). Greater Accra, Volta…Most Corrupt District Assemblies. Web.

Garrett, G., & Rodden, J. (2001). Globalisation and Fiscal Decentralisation. Web.

Gimpelson, V., & Treisman, D. (2001). Games and Public Employment: A Theory with Evidence from Russia. Web.

GNA. (2009). Conflicts Stagnating Ghana’s Decentralisation Process. Web.

Gockel, A., & Vormawar, D. (2004). FES Trade Union Country Reports: the Case of Ghana. Web.

Goldberg, P., & Pavcnik, N. (2006). Distributional Effects of Globalisation in Developing Countries. Journal of Economic Literature, 45(1), 39-82.

Graphic, D. (2011). Clash of Generals – Sottie, Dua Agyeman Disagree Over ¢722m Fraud. Web.

Green, E. (2008). Decentralisation and Conflict in Uganda. Web.

Gropello, E. (2004). Education Decentralisation and Accountability Relationships in Latin America. Web.

GTZ & MOF. (2010). Study to Review MMDA Development Planning, Budgeting, MTEF and Capital Budgeting Processes. Web.

Guess, G. (2010). Dysfunctional Decentralisation: Electoral System Performance in Theory and Practice. Web.

Halder, P. (2007). Measures of Fiscal Decentralisation. Web.

Hayo, B., & Hefeker, C. (2001). Reconsidering Central Bank Independence. European Journal of Political Economy, 18(1), 653–674.

Higazi, A. (2004). Policy Levers in Ghana: Centre for Research on Inequality, Human Security and Ethnicity. Web.

Hoffman, B., & Metzroth, K. (2010). The Political Economy of Decentralisation in Ghana. Web.

Hutchinson, P., & LaFond, A. (2004). Monitoring and Evaluation of Decentralisation Reforms in Developing Country Health Sectors. Web.

Ikeanyionwo, L. (2001). Fiscal decentralization and local development in Nigeria, research series. Dortmund: University of Dortmund.

ILO: The Impact of Decentralisation and Privatisation on Municipal Services. (2001). Web.

Iqbal, N., & Nawaz, S. (2011). Fiscal Decentralisation and Macroeconomic Stability: Theory and Evidence from Pakistan. Web.

Ismihan, M., & Ozkan, F. (2003). Does Central Bank Independence Lower Inflation. Web.

ITMT: International Records Management Trust: Ghana Case Study. (2008). Web.

Jackson, P., & Marquette, H. (2003). The Interaction Between Traditional Systems And Local Government Systems In Sub-Saharan Africa. Web.

Jaja, J. (2003). Globalisation, Nigerian Culture and Development in Perspective. Nigerian Business and Social Review, 2(2), 113-125.

Jaja, J. (2009). Globalisation or Americanisation: implications for Sub-Saharan Africa. Web.

Jönsson, J. (2007). The Overwhelming Minority: Traditional Leadership and Ethnic Conflict in Ghana’s Northern Region. Web.

Jütting, J., Kauffmann, C., & Wegner, L. (2004). Decentralisation and Poverty in Developing Countries: Exploring the Impact. Web.

Kalinga, G. (2010). The Contribution of Fiscal Decentralisation to Macroeconomic Stability, Growth and Poverty Reduction. Web.

Kessey, K. D., & Kroes, G. (1992). Local revenue administration in Ghana; practice and prospect. University of Dortmund, Germany: SPRING Centre.

Koirala, B. (2011). Foreign Aid and Education in Nepal, some Critical Issues. Web.

Kolstad, I., & Fjeldstad, O. (2006). Fiscal decentralisation and corruption A brief overview of the issues. Web.

Kruger, P., Oates, W., & Pizer, W. (2007). Decentralisation in the EU Emissions Trading Scheme and Lessons for Global Policy. Web.

Lambsdorff, J. (2001). How Corruption in Government Affects Public Welfare: A Review of Theories. Web.

Lao-Araya, K. (2002). Effect of Decentralisation Strategy on Macroeconomic Stability in Thailand. Web.

León-Alfonso, S. (2007). The political Economy of Fiscal decentralisation. Web.

Levaggi, R., & Smith, P. (2003). Decentralisation in Health Care: Lessons from Public Economics. Web.

Liu, C. (2007). What Type of Fiscal Decentralisation System Has Better Performance. Web.

Lockwood, B. (1998). Distributive Politics and the Benefits of Decentralisation. Web.

Lockwood, B. (2005). Fiscal Decentralisation: A Political Economy Perspective. Web.

LOGODEP: USAID Gives Grants to Civil Society Organisations. (2011). Web.

Lowndes, V., & Wilson, D. (2010). Social Capital and Local Governance: Exploring the Institutional Design Variable. Web.

Malhotra, N. (2009). Marketing Research- An Applied Orientation, 5th edn. London: Prentice Hall.

Marceau, W. (1985). Privatisation of Municipal Services in Sub-Saharan Africa. Web.

Martinez-Varquez, J., & Yao, M. (2009). Fiscal Decentralisation and Public Sector Employees: A Cross-Country Analysis. Web.

Marx, K. (1955). The Poverty of Philosophy, 10th edn. Moscow: Progress Publishers.

Mearsheime, J. (1995). The False Promise of International Institutes. International Security, 19(3), 5-49.

Mello, L. (2010). Does Fiscal Decentralisation Strengthen Social Capital? Web.

Mensah, S., Aboagye, K., & Addo, E. (2003). Corporate Governance And Corruption In Ghana. Web.

MLG. (2008). Intergovernmental Fiscal Decentralisation Framework. Web.

MOFEP: Highlights of the 2012 Budget. (2012). Web.

Mohan, G., & Williams, Z. (1998). Imperialism in the Post-Cold-War Era. Review of African Political Economy, 66(1), 481-484.

Nóbrega, M. (2009). Fiscal Decentralisation and the Control of Public Expenditure: Improvement In The Performance of Governmental Programs By Principal-Agent Model: The Bolsa. Família Case. Web.

Oates, W. (1968). The Theory of Public Finance in a Federal System. The Canadian Journal of Economics, 1(1), 37-54.

Oates, W. (1997). On the Welfare Gains from Fiscal Decentralisation. Web.

Oates, W. (1999). An Essay on Fiscal Federalism. Journal of Economic Literature, 37(3), 1120-1149.

Oates, W. (2005). Toward A Second-Generation Theory of Fiscal Federalism. International Tax and Public Finance, 12(1), 349–373.

Obuasi, A. (2011). NDC Scribe in Sex Scandal. Web.

OECD. (1999). Taxing Powers of State and Local Government. Web.

OECD. (2004). Decentralisation and Poverty in Developing Countries: Exploring the Impact. Web.

OECD. (2006). Fiscal Rules for Sub-Central Governments: Design and Impact. Web.

Osei, B. (2004). The cost of aid tying to Ghana. Web.

Otoo, K., & Asafu-Adjaye, P. (2009). The Effects of the Global Economic and Financial Crisis on the Ghanaian Economy and Labour Market. Web.

Panizza, U. (1999). On the Determinants of Fiscal Centralisation: Theory and Evidence. Journal of Public Economics. Journal of Public Economics, 74(1), 97-139.

Panizza, U. (2008). The Domestic and External Public Debt in Developing Countries. Web.

Paxton, P. (2002). Social Capital and Democracy: An Interdependent Relationship. American Sociological Review, 67(2), 254-277.

Prud’homme, R. (1995). On the Dangers of Decentralisation. Web.

Putnam, R. (1995). Bowling Alone: America’s Declining Social Capital. Journal of Democracy, 6(1), 65-78.

Quandzie, E. (2011). Ghana Business News: Bureaucratic, Corrupt’ Public Sector is Failing Ghana’s Private Businesses. Web.

Resnik, D. (2011). What is ethics in research & why is it important? Web.

Rodden, J., & Wibbels, E. (2001). Beyond the Fiction of Federalism Macroeconomic Management in Multitiered Systems. Web.

Rodden, J., & Wibbels, E. (2010). Fiscal Decentralisation and the Business Cycle: An Empirical Study of Seven Federations. Web.

Rogoff, K. (1985). The Optimal Degree of Commitment to an Intermediate Monetary Target. Web.

Roitman, K. (2009). Impact of the Financial Crisis on Decentralisation Processes. Web.

Rondinelli, D. A. (1989). What is decentralization? Washington DC: World Bank Poverty Reduction and Economic Management Seminar.

Sala-i-Martin, X. (1997). I Just Run Four Million Regressions. Web.

Samimi, A., Zakeri, Z., & Azizi, K. (2012). Corruption & Fiscal Decentralisation: Evidence from some developing countries. Web.

Sasaoka, Y. (2008). The Effect of Decentralisation on Conflict Prevention. Web.

Saunders, M., Thornhill, A., & Lewis, P. (2006). Research Methods for Business Students, 4th edn. London: FT Prentice Hall.

Sekaran, U. (2006). Research Method for Business, 4th edn. London: John Wiley & Sons.

Sen, A. (1988). On Ethics, and Economics, 2nd edn. Oxford: Blackwell Publishing.

Sen, A. (1995). Rationality and Social Choice. The American Economic Review, 85(1), 1-24.

Shah, A. (2006). Fiscal Decentralisation and Macroeconomic Management. Web.

Smoke, P. (2001). Fiscal Decentralisation in Developing Countries: A Review of Current Concepts and Practice. Web.

Tambulasi, R. (2009). Decentralisation as a Breeding Ground for Conflicts: An Analysis of Institutional Conflicts in Malawi’s Decentralised System. JOAAG, 4(2), 28-39.

The World Bank. (2004). Institutional and Incentive Issues in Public Financial Management Reform in Poor Countries. Web.

Tóth, K. (2009). Local Financial Autonomy in Theory and Practice the Impact of Fiscal Decentralisation in Hungary. Web.

TRF: Anti-Corruption Profile – Ghana. (2011). Web.

USAID: Fighting Poverty through Fiscal Decentralisation. (2006). Web.

Vazquez, J. (2011). The Impact of Fiscal Decentralisation Issues in Theory and Challenges in Practice. Web.

Veljanovski, A. (2007). The Model of the Asymmetric Fiscal Decentralisation in the Theory and the Case of Republic of Macedonia. Web.

Wei, S. (1999). Corruption in Economic Development: Beneficial Grease, Minor Annoyance, or Major Obstacle. Web.

Williamson, C. (2011). Exploring the failure of foreign aid: The role of incentives and information. Web.

Winkler, D., & Yeo, B. (2007). Identifying the Impact of Education Decentralisation on the Quality of Education. Web.

World Bank. (2003). Decentralisation Policies and Practices: Case Study Ghana. Web.

Wuaku Commission. (2002). Wuaku Commission Report. Web.

Zikmund, W. (2006). Business Research Methods, 7th edn. Orlando: Harcourt Publishers.

Zoure, S. (2011). Assembly Members Arrested For Missing Items. Web.

Zürcher, D., & Troshani, A. (2007). The role of civil society in decentralisation and better local governance – a case study of Northern Albania. Web.

Footnotes

  1. Provisional National Defence Council.
  2. District Development Facility.
  3. District Assemblies Common Fund.