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Wednesday, 23 June 2010

Does decentralisation reduce corruption?

Yes. According to a new World Bank paper :

The paper concludes that decentralization (localization) has significant negative effect on the incidence of corruption in the majority of our settings. Empowering local governments reduces frequency of bribery and amount of bribes paid to government officials both by households and by firms. Political decentralization matters even when fiscal side of decentralization is controlled for. The empirical results presented here further demonstrate that voice (local accountability) matters more than exit (interjurisdictional competition) in combating corruption.
The literature in general provides mixed results on this question. Whilst localization can help solve the problems of a unresponsive public sector and lack of  local voice and absence of area based competition, it is can also led to capture by local elite, aggravation of macroeconomic management due to lack of fiscal discipline and perverse fiscal behavior by sub-national units.  A huge problem has been definitional problems, as well as absence of quality data. This latest paper appears to have tried solving both problems, although the data on corruption is still perceptional and forms part of a general brigade that has been questioned.   That said, in many ways what is more important is that corruption appears not to be a problem. We should see the benefits of decentralisation not so much in reducing corruption (that is debatable), but as part of broader view of what development fundamentally involves  greater local choice and decision making. See A cultural approach to Zambia's development for some of my reflections on this.

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