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Essay: The challenges of fiscal Autonomy and Financial Accountability at Local level Governments

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An evaluation in the light of international experiences
Strengthening Local governments by providing more autonomous power in fiscal affairs and ensuring citizen involvement is believed to empower people at local level and can bring changes from root level as local governments only know the needs from grassroots. This paper is designed to examine the major issues and concerns related to fiscal autonomy, accountability mechanism and decentralization at local level around the world and connect those issues to broder governance paradigm and find out the major challenges to advance democratic practices at local level. A wide range of literatures is examined for the purpose. Dependence on central government in fiscal affairs is recognized as common scenario in local government financing, though, a wave of decentralization is noticed around the world. It is observed that the decentralization process was not followed by proper empowerment in fiscal affairs at local level, both in developed and developing nations. However, Most of the local government experiences indicate positive relations between financial decentralization and better governance. Though some examples of escalating corruption by fiscal decentralization are recorded, fiscal decentralization is recognized to have a positive impact in reducing corruption. Fiscal autonomy is identified in different experiences as an effective tool to ensure accountability and transparency. Furthermore, introducing of cost-effective e-government in advancing good governance is increasingly being recognized around the world.
Key Words: Local Government, Decentralization, Financial Fiscal Autonomy, Financial Accountability, International experiences.
1. Introduction
Over the past two decades a wave of decentralization to the local political bodies has been noticed all over the world. (Martinez-Vazquez, May 2007, p.
1) These worldwide trend towards decentralization is welcomed by the academicians and experts as a positive sign for democratic transformation and the process can be perceived in two fundamental observations,:’First, decentralization is most often associated with an increase in local autonomy. Second, the connotations and values attached to decentralization and local autonomy are almost exclusively positive.’ (Beer-T??th, 2009, p. 29)However, it is observed in most of the cases that political or administrative transfers of power were not followed by proper empowerment in fiscal affairs. Low fiscal autonomy has been a major policy problem in the decentralization process at local level both in developed and developing nations. Central control and supervision of local affairs also found to be a major obstacle in the trends of governing local governments around the world. Lack of fiscal autonomy is closely related to ensuring accountability and transparency for the local government bodies. For better governance at local level, it is urged that more emphasis should be given to local level fiscal decentralization so that local governments can have a certain level of financial resources to organize their internal affairs and ensure peoples empowerment at local level .This paper is designed to examine the major issues and concerns related to fiscal autonomy, accountability mechanism and decentralization at local level around the world and connect those issues to broder governance paradigm and find out the major challenges to advance democratic practices at local level. The paper will try to give an overall view of the trends of local level governance practices in both developed and developing world and will try to bring under a comparative lens of all the concurrent issues and challenges related to local level governances financing.
A) Financing by Central Government: central control and the question of autonomy
Dependence on central government in fiscal affairs is a worldwide trend in local government financing. Intergovernmental transfers are the important sources of local government financing around the world. It is thought that these government transfers have political dimensions as most of such kinds of transfers are designed from center with political motives. Therefore, it is important to assess the role of center government in financing local bodies around the world. In this part, the global trends of intergovernmental transfers, imbalance between center and local and its political dimensions around the world will be discussed and analyzed with the purpose to comprehend the magnitude of central government transfers to local government around the world.
1. Intergovernmental transfers for financing local governments
Intergovernmental transfers are the main source of local governmental finance around the world.
The transfers are especially important for developing nations because local government taxing powers are very limited in most of the developing world. In fact, many different types of transfers are in use around the world and it is difficult to settle on a best practice (Roy, 2008, p. 30). It is urged to reduce the flow of government grants to local governments and increase the scope of local taxation and resource mobilization. In fact, the share of government grants in local government budgeting is recognized as an indicator for financial autonomy at local level (Daniel Bergvall & Merk, 2006, p. 4) and bridging the gap between revenues and expenditures remain the main challenge for the effective execution of decentralization and democratic transformation. However, there is yet any consensus whether those transfers promote efficiency or misallocate resources at local level. In one view, lack of adequate resource transfers to local governments creates difficulties to finance their expenditure responsibilities, while in other view; overdependence of central grants can undermine local accountability. According to one analyst over-dependence can created perverse incentives at the local level to misallocate public resources in federal system. (Khemani, July 24,2001, pp. 5-6)
2. Political dimension of financial decentralization
Local autonomy is a fundamental base for making democracy work, and is often referred to as a ‘school in democracy.’ (Shimizutani, 2010, p. 99) People’s participation should come from the roots and decentralized and autonomous local body can equip the people at local level to promote democratic procedures .Nevertheless, it can backfire from its own strength. Decentralization which is believed to break down the asymmetric relationship of clientelism at local level can create a new type of clientical political practices in real world (Garc??a-Guadilla & P??rez, 2002, p. 104). Indeed, in many cases, decentralization simply empowers local elites to capture a larger share of public resources, often at the expense of the poor (Johnson, Deshingkar, & Start, 2005, p. 937). Recentralization process also can be noticed for political reasons. Nicholas Awortwi examines the administrative reform policy of Ghana and Uganda; and showed that recentralization and further weakening of LGs are likely to continue in both countries because the initial path that was created benefited politicians and bureaucrats and they are committed to staying on that course. (Awortwi, 2011) Political calculation is always a major factor in any policy setting. Even, in Developed world, like UK, political trend of targeting local government fund can be identified. (John & Ward, 2001).Central-periphery financial relations in different countries always evolved differently in different political perspective. Moreover, developing countries often reach their decision about intergovernmental transfers for political reasons as well. (Roy, 2008, p. 33) Bahl Roy explained the politics behind the intergovernmental transfers in three categories:
i. The Central authority likes to provide local governments with intergovernmental transfers that carry stringent conditions to bypass the decentralization demand.
ii. A reason for advocating intergovernmental transfers by central government is the goal of enforcing uniformity in the provision of public services.
iii. A transfer system may be put in place as part of a political strategy to hold open the option of offloading the budget deficit on to subnational governments (for example, underfunding a grant program). (Roy, 2008, pp. 33-34)
Thought, it is thought that there are political calculations behind the sanctions of government grants, it is the dominating trends in both developed and developing world and the trend of Intergovernmental transfers is likely to continue.
3) Financial Gap between local and central governance
Countries, both developed and developing, transfer funds to equip the local governments for providing services and generate development at local level .However; Developing and transition countries are characterized by wide disparities among regions in economic well-being. (Roy, 2008, p. 31) Nevertheless, vertical imbalance existed between centre and periphery is a common symptom of fiscal imbalance of developing nations which is believed to treat with taking policies of financial empowerment. An analyst emphasized the solution to adopt equalization measures of inter-regional differences in financial capacities and it can be accomplished by providing intergovernmental transfers. (Roy, 2008, p. 31) In a study of 9 major developed and developing countries , it is suggested to adopt more equalization formula to face the disparity problem. (Ma, 1997)Roy Bahl identified a reason behind transfers (subnational) is to offset externalities so that local governments can make their own decision and may underspend on services where there are substantial external benefits (Roy., 2000, p. 3). It is also argued by Roy that reducing administrative cost of taxing may be another cause to collect tax by central authority and then the central government transfers grants to local level. (Roy., 2000, p. 4)
In OECD countries 34.4 percents of revenues come from transfers. (Shah & Shah, 2006, p. 37). In a study of OECD countries , a growing trend of widening gap between sub-national tax and expenditure shares in the last twenty years is identified (Daniel Bergvall & Merk, 2006, p. 5)which caused a higher dependence of sub-national governments on grants. So fiscal decentralization in OECD countries, in fact, shrink the scope of fiscal autonomy as sub-national governments have become more dependent on central governments for their resources. Intergovernmental transfer from centre to state governments in USA constitutes a larger part of state budgeting. These transfers accounted for about 38% of all local government revenues, ranging from a low of 19.2% in Hawaii to a high of 70.2% in Vermont (Wildasin, 2009, p. 7).In developing countries, the dependence of fiscal transfers is more instrumental. Intergovernmental fiscal transfers finance about 60 percent of subnational expenditures in developing and transition economies. (Shah. A. , 2007, p. 1) In a study of World Bank on some selected countries, it is found that the average funding of local governments by government transfer is 50.9 percent. (Shah & Shah, 2006, p. 37)It is found that the fiscal transfers are much larger than average in Uganda (85.4 percent), Poland (76.0 percent), China (67.0 percent), Brazil (65.4 percent), and Indonesia (62.0 percent). (Shah & Shah, 2006, p. 37) It is also noticed in AND report that significant vertical fiscal imbalances prevails in Bangladesh, India, and Pakistan, and at the local level in the Philippines, the PRC, and Viet Nam. (Martinez-Vasquez, 2011, p. 5)In case of revenue autonomy, lower autonomy can be found as a common practice in many countries. Revenue autonomy is found low outside Japan and the Republic of Korea, and much less in Indonesia and the Philippines. However, autonomy at provincial level can be traced in India, Pakistan, and the PRC. (Martinez-Vasquez, 2011, p. 5)
4) Fiscal autonomy and the question of public service delivery of Local Government
Decentralization is recognized as a way to bring people closer to government services and also as a feedback mechanism to response the local people needs. This move reflects public preferences for more democratic and participatory forms of government in order to improve the level of public services to respond to the needs of users of those services. (Sayuri, 2005) Though the notion of fiscal autonomy is central in fiscal decentralization literature; the idea of fiscal autonomy did not get proper academic investigation at the beginning. The local autonomy concept can be traced from Tibeout model of 1956 as an arrangement for local competition. Probably the earliest attempt was from Clark who described autonomy as a relative concept with two specific powers: power of initiations and power of immunity. (Beer-T??th, 2009, p. 31) Early theorization was mostly involved to deal with the question of the capacity of local government following Clark and then later literatures incorporate other issues including local government autonomy. The European Charter of Local Self-Government taken by the Council of Europe in 1985 described local self-government (i.e. local autonomy) along the double characteristics of right and ability to manage local public affairs. (Beer-T??th, 2009, p. 36) Therefore, it is obvious that fiscal empowerment is an important part of decentralization and without it, the goal of effectively providing services from local level cannot be achieved.
Though a wave of decentralization is recorded around the globe in the last two decades, the decentralization of local bodies did not supported by proper autonomy in fiscal affairs. Low expenditure autonomy due to the central supervision lacks the local government to introduce or keep services by their own. A study on the local government finance of some OECD countries found that the most common way of transferring resources from central to subnational government is through earmark grants and these grants are used for the purpose of financing and subdivision of services and for equalization of tax or service capacity (Daniel Bergvall & Merk, 2006) The study affirmed that non-earmark grant can be more effective instrument for financial purposes. On the other hand, a study on fiscal decentralization of Asian countries found that many Asian countries exhibits the highest level of decentralization in the world in term of the share of subnational government in total expenditures. (Martinez-Vasquez, 2011, p. 3) It is showed in the report that 70% of total expenditure is allocated at subnational level in PRC, 66% in India, 60% in japan,45% both in republic of Korea and Vietnam. However, this data in many cases failed to interpret the actual level of autonomy at local level. Throughout the entire region, heavy reliance and dependence on transfers and revenue sharing can be found. Lower tier governments in most Indian states have a very little expenditure autonomy from their state governments. (Martinez-Vasquez, 2011, p. 3) It is also noticed that central government in many countries involved in local functions as well. Expenditure autonomy (percentage of own expenditure under effective control of sub-national governments), is on average higher (74% for all but 96% in Croatia, and 7% in Albania) in transition economies than developing countries (58% for all but 95% for Dominican Republic and 23% for South Africa. (Shah. A. , 2004, p. 17)
B) Financing by own: three major sources for local financing
There are different means of financing local needs by own resources of local governments. Three sources from which local level bodies mostly rely on are local level taxation, local government Borrowing and Public private partnership which have significant importance to enforce local financing.
1. Local level Taxation: empowered by own sources
Taxes are the most important sources of the local government revenues. Financial decentralization process provides the Local governments institutions with the necessary authority to change tax rate, initiate new tax and enhance the scope of the tax. It is thought that fiscal decentralization will increase taxation net and a greater share of GDP will be reached by tax system. Indeed, it is believed that increased subnational revenue mobilization will reduce the need for intergovernmental transfers from central revenues (Bird & Bahl, 2008, p. 4).
Significant tax assignment to subnational governments has become prevalent in developed countries (Bird R. , November 2010, p. 1). Bird & Bahl examines different country cases and identified the trend of developed world. (Bird & Bahl, 2008, p. 6)US State governments and Canadian provinces have almost complete autonomy in choosing any tax base, so long as there is no interference with interstate commerce. In Denmark and Sweden, local taxes account for nearly one-half of local government spending. Revenues from subnational government taxes in Switzerland are greater in amount than revenues received from grants. Though, Japan had a conservative tax policy which allow little to local government in term of taxing capabilities but the country is planning to introduce new intergovernmental reform to shift taxing power significantly to local governments (Bird & Bahl, 2008, p. 6) However, it is noticed that in most developing countries, central governments have been reluctant to reform the taxing system for subnational governments. (Bird & Bahl, 2008, p. 7) The subnational tax share in total taxes in developing countries is only about 10 percent while it is 20 percent in industrialized countries. These figures have changed little in the last 30 years. (Bird & Bahl, 2008, p. 7) Local governments in countries like Cambodia, China and Vietnam get less than 5 percent of their total revenues from their own sources (Talierciao, 2005, pp. 107-128) On the other hand, in a few developing countries, like the Philippines, Brazil, and Colombia, a third or more of subnational government expenditure is met up by own sources (Bird & Bahl, 2008, p. 7)
It is thought that increased fiscal autonomy would improve the efficiency and responsiveness of the public sector governance. (Fjeldstad & Semboja, 2000, p. 28) However, strengthening autonomy by providing more taxation power to local government can cause greater mismanagement and corruption in local authorities. In developing country like Tanzania where Local taxes represent less than 6 per cent of total national tax revenues (Fjeldstad & Semboja, 2000, p. 7), it is strongly recommended to restructure the revenue system combined with capacity building and improved integrity mechanism. In case of India, it is noticed that decentralization of fiscal power to local Panchayat Body eventually decreases the volume of taxes and also shrink the tax base. The chiefs of the Panchayats always count the elections factors which is one of the cause of declining taxes. So it is recommended to undertake more accountability measures and provide intensives in tax collection of the Panchayat. (Jha, Kang, & Nagarajan, 2011) Therefore, in case of tax autonomy, it can be assumed that capacity building and ensuring accountability and transparency are crucial while transferring power to local authority.
A major part of local revenues is collected from property taxes around the world. OECD countries raise 54 percent of local revenues from property taxes, 23 percent from personal income taxes, 14 percent from corporate taxes, and 9 percent from other taxes. (Shah & Shah, 2006, pp. 37-39) Therefore, it is apparent that local governments in OECD countries depend more on property and income taxes than other sources. But developing word lacks proper tax autonomy because of the unwilling political elites and capacity problems. For all developing countries, revenues from property taxes constitute only 0.5percent of GDP which is about 2 percent (1 to 3 percent) of GDP in industrial countries. (Shah & Shah, 2006, p. 39) Therefore, property taxes may represent significant untapped potential for funding local affairs in developing countries.
2. Local government borrowing: Challenges and promises
Unavailability of government grants and Lack of local funding sometimes compelled local governments to take loans from public and private sectors. Local government bodies usually collects loans from banking sector ( both national and international development program loans) or issued bonds. (Bucic & others, 2011, p. 2) Developments projects are designed with such type of borrowing options for emergency situation. Large infrastructure deficiencies in developing countries call for significant access to borrowing by local governments. (Shah & Shah, 2006, p. 40) Local access to credit requires well-functioning financial markets and creditworthy local governments; however, in most of the local governments in developing countries lacks both. (Shah & Shah, 2006, p. 40) Heavy reliance on borrowing also can jeopardize macroeconomic stabilization. For example, perversely structured intergovernmental systems destabilized the economy of Argentina in the late 1990s. (Yilmaz, Beris, & Serrano-Berthet, 2008, p. 281) After the 90es Japan took some initiatives to empower local governments by issuing bonds with guarantees, uniform issuing conditions, and secured finance from public funds to meet up the gap between revenues and expenditure. But it was proven ineffective and unproductive in most of the cases and it is suggested to adopt accrual-based accounting system instead of cash-based accounting system. (Sayuri, 2005)Most countries follow the policy to limit, control, or even prohibit the issuance of debt by local governments. A World Bank study report found none of the local governments of ten country’s health and education sectors that are surveyed in the study was given full discretion to borrow. However, it is noticed in the study that local governments in Burkina Faso, Ethiopia, Kerala, Philippines, Rwanda, Tanzania and Uganda, have partial authority over borrowing. (Bank, 2009, p. 55)
3. Public Private Partnership (PPP): A New Window of local Financing
Public-Private Partnerships (PPP’s) have been hailed as the latest institutional form of co-operation between the public sector and the private sector. (Greve & Ejersbo, 2002, p. 1) If local government enjoys necessary autonomy from central government, PPP can be used as effective instrument to respond to the local demand without looking funding from central government. For example, Mandaluyung city of the Philippines build a new Market place using the PPP formula which had lacking of fund at that time. But PPP has some instrumental risks concerning the possibilities of misuse of power, corruption and transparency. The Danish local government of Farum in Denmark was considered as one of the success story of PPP at local level governance in 90s.But later, a huge scandal of corruption and irregularities were erupted in the organization in 2002. Clash between central government and lack of democratic accountability mechanism were thought to be responsible for the failure of the local governance. (Greve & Ejersbo, 2002) In an article on the PPP taken by Morogoro municipality in Tanzania, Lameck analyzed various PPP project by the city and urged that there should be a framework of rule and regulation to undertake such practice; otherwise Government will lose control over the whole procedure. (Lameck, 2009).As private organizations are more profit oriented, the local governments should be more careful about the accountability and responsiveness of the project. John Hood and N Mcgarvey showed that the local Government PPP initiatives taken by Labour Government in Scotland lack proper risk management procedures which might jeopardize the whole arrangement. (Hood & Mcgarvey, 2002)
C) Corruption, accountability and Fiscal decentralization
Decentralization of fiscal affairs is thought to be a panacea for corruption and to promote accountability and transparency at local level. However, it has some significant policy risks as it can open up new windows of nepotism, corruption and mismanagement.
1. Does fiscal decentralization combat corruptions?
It is assumed that fiscal devolution to local governments creates space to bring the services to the people and installs a way of trustworthiness which can decrease the culture of corruption practice. A flow of increasing intergovernmental and political competition installed by decentralization can reduce rent seeking and monopolistic behavior and improve service deliveries. (Fisman & Gatti, 2002) But there is huge debate on the effectiveness of fiscal reforms to bring accountability and transparency by installing decentralized structure. Some researchers have an optimistic assessment on the effect of decentralization of fiscal affairs on corruption while some other explained decentralization as a way of corruption. Treisman argued that decentralized government creates many levels of governments and a more complex system of governance reduce accountability and increase corruption. (Treisman, 2000) Prud’homme stated that there is more opportunity for corruption at local level as local bureaucrats have more powers to execute and they are influenced by the local interest groups. (Prud’homme, 1995) Goldsmith argued that it is easy to hide corruption in local level than center level. (Goldsmith, 1999) But most other studies found a negative relationship between the two variables. An exclusive study on 24 countries in the time frame of 1995-2007 found that fiscal decentralization has a positive impact in reducing corruption. (Padovano, Fiorino, & Galli, 2011) In another rigorous study of 182 countries, it is founded that decentralization and corruption has a negative relationship. (Ivanyna & Shah, 2010)
In Malawi, a move to decentralize the local government body in 2000 following the act of 1998 opened up a huge window of corruption in the country. (Tambulasi & Kayuni, 2007) After the fiscal reform and devolution of fiscal power to local bodies, the new-patrimonial leadership became reinforced exploiting the opportunities which eventually broke down the accountability system. (Tambulasi & Kayuni, 2007) Tambulasi in another article expressed the view that adaptation of new public management strategy is the policy problem of the whole process and suggested to take public governance reform model with more participation and transparency. (Tambulasi R. I., 2009) Some argues that using bribery as an indicator of corruption is problematic and other social and economic indicators should be examined. (Bardhan & Mookherjee, 2005) He summarized that the relation between corruption and decentralization is very complex as a lot of variable is involved in the process and single one approach is not enough to unveil the underlying relationship. He also mentioned that the problem of capture and lack of accountabilities are the major obstacles in developing countries. Robert Klitgaard (1988) explained the principle’agent theory and argued that monopoly and discretion can exacerbate corruption while accountability has a reducing effect. (Witz, 2011, p. 5)A report on the corruption of Local governments in Latin American countries also suggested taking legal and institutional reforms to combat the problem. (Bliss & Deshazo, 2009) The Report emphasizes on the availabilities of information and urged for performance management efforts to be undertaken. (Bliss & Deshazo, 2009, pp. 14-15) Nina Witz in a paper showed that accountability in local level water governments is relatively higher than central government in Sweden and described decentralization as an antidote of corruption. (Witz, 2011)Arikan also found evidence that decentralization can lower the level of corruption. (Arikan, 2004) .Furthermore, fiscal decentralization believed to have positive impact on the citizen behaviors regarding the corruption issues and can boost social capital by increasing trust among the citizens to the government officials and bring the government closer to the people. Oguzhan Dincer found a positive correlation between fiscal decentralization and trust using data from US states. (Dincer, 2010) Following the seminal work of Putnam, a good number of empirical studies found a positive impact of social capital on the economic growth of a country and it is suggested to follow fiscal decentralization as a policy to increase social capital and trust in both developing and developed countries. (Dincer, 2010, p. 189). In case of Zambezia of Mozambique, Akiko Abe found that Social trust (one dimension of social capital) was formed in a shorter period of time than Putnam has outlined. (Abe, 2009, p. 77)
2. Risks of Local fiscal Autonomy and accountability mechanism
Financial devolution of power is thought to empower the local leadership and provides accountability and transparency to the whole settings. However, providing financial autonomy at local level has some potential risks. Fiscal decentralization depends on the ability of local governments to manage revenues and expenditures effectively and requires strong institutions for financial accountability. (Yilmaz, Beris, & Serrano-Berthet, 2008, p. 23) Financial accountability seeks transparency in the management of public funds. It also requires that governments manage finances prudently and ensure integrity in their financial reporting, control, budgeting and performance systems. (Sahgal & Chakrapani., 2000., p. 3) In an article, Serdar Yilmaz, Yakup Beris and Rodrigo Serrano-Berthet explained two methods of downward accountability (Public accountability approaches and Social accountability approaches) of local financial organization along with other methods .They examined different experiences of financial autonomy and accountability from different countries and identified different issues arising from the lack of internal controls. (Yilmaz, Beris, & Serrano-Berthet, 2008) They showed that many nations impose central control over local governments as a policy to restructure subnational relations observing the capacity problem of local governments around the world. They suggest not taking only upward accountability mechanism which may limit local government autonomy in decision-making and service delivery negating the intended empowering of local governments. (Yilmaz, Beris, & Serrano-Berthet, 2008, p. 26) Yilmaz and Felicio examined the decentralization and low accountability problems of Angola and urged for a checked and balanced policy to cope with the tendency of abusing of discretion power. (Yilmaz & Felicio, 2009) Though citizen participation is ensured at local level there, Provincial and Municipal administrators did not genuinely embrace the spirit of the citizen councils. It is suggested to incorporate appropriate advocacy efforts to ensure quality participation processes at the municipal and provincial levels and emphasis on strengthening civil society’s skills that will incrementally increase accountabilities in public expenditure management activities and will ensure proper oversight. (Yilmaz & Felicio, 2009, p. 21)In Ethiopia, it is noticed that progressive features of fiscal decentralization were not followed by political management. A strong upward accountability structure without the accompanying discretion and downward accountability mechanism was the main feature of the system which failed to ensure the accountable nature of organization. (Yilmaz & Venugopal, 2008, pp. 23-24) It is evident from different experiences that a combination of upward and downward accountability arrangement and a participatory nature of governance only can ensure democracy, better management and transparency at local level. Anwar Shah, in an article, urged for judicial accountability measures in developing countries where laws on property rights, corporate legal ownership and control, bankruptcy, and financial accounting and control are not fully developed. (Shah. A. , 2004, p. 34) He also emphasis on traditional channels of accountability such as audit, inspection and control functions should be strengthened, since they tend to be quite weak in transition and developing economies. (Shah. A. , 2004, p. 34)
3. Participatory local budgeting for more accountability and transparency
Budgeting at local level is a significant instrument for the fiscal health of a local body. Traditional municipal budgets which is in fact, focused with incremental line-item budgeting practice, have historically been constructed on giving emphasis on accounting staffs to face the audit requirements and it said by one analyst mentioned that it is aimed to the audited financial statements required to be submitted by municipal authorities after the fiscal year. (Schaeffer & SerdarYilmaz, 2007, p. 8)Over the last two decade, it is observed that different reform measures have been taken incorporated with the traditional budgeting to ensure more transparency and accountabilities. Program budgeting at local level brought different planning and accountability measures differing from the traditional line-item approach in preparing, reviewing, and presenting the budget. In recent changed global world, participatory local budgeting becomes a powerful good governance tool to integrate citizens in government’s matters. Participatory budgeting is considered as a direct-democracy approach to budgeting and by enhancing transparency and accountability participatory budgeting can help reduce government inefficiency and curb clientelism, patronage, and corruption. (Shah, Overview, 2007, p. 1) However, Participatory budgeting has some significant risks. Participatory processes can be captured by interest groups. Such processes can mask the undemocratic, exclusive, or elite nature of public decision making, giving the appearance of broader participation and inclusive governance while using public funds to advance the interests of powerful elites. (Shah, Overview, 2007, pp. 1-2)
4. E-Governance for strengthening decentralization
The potential of e-government in advancing good governance is increasingly being recognized. (Bank., 2004) E-governance is identified as an efficient tool to generate transparency and ensure accountability in government procedures. Moreover, one of the strength of e-governance is that it is cost effective. E-procurement creates a highly competence and transparent environment of procurement and a faster method of getting quotes which can narrow the scope of corruption and also reduce the cost as well. E-procurement can even cut 50 % municipalities public procurement cost. In this backdrop, it is highly recommended to induce electronic methods in government procurement and other administrative procedures for transparency and ensure easy access of the citizens.
World Bank funded some pilot cases in developing world (some state in India) and found a positive result in widely used services, such as issuance of licenses and certificates and collection of payments and taxes (Bank., 2004). One of the strength of e-governance is that it provides transparency which acts as a viable tool against corruption. For example, Karnataka State of India digitalized the transfer system of teachers and it eventually reduced the scope of corruption in the transfer process. (Bank., 2004) In Andra Pradesh of India, the e-governance strive faced lot of difficulties due to manage huge information of complex administration which is related to a vast population. Reengineering and changing work processes across 70 departments in the secretariat have been a challenge even for the country’s largest information technology company, which is implementing the project. (Bank., 2004) Most e-governance project requires huge funding to automation the whole system and also huge population in developing countries are outside the internet facilities. In a report on African prospect to introduce e-governance, it is identified that adequate funding and low rate of literacy and PC penetration rate are the challenges to update the whole system under e-governance. (Kitaw, 2006, p. 8) Another study of six African southern countries (Ghana, Kenya, Tanzania, Namibia, South Africa and Swaziland) examined e-Readiness conditions and suggested to initiate more capacity building measures to strengthen the procedures. (Meyaki, 2010)Digital divide is a big challenge to integrate all the people in a more citizen centric structure of e-governance. Growing mobile networks around the world and also in developing countries can be easily recognized and m-Governance (providing services though mobile phones) can be an option to fight the digital divide. Integrating fiscal measures in local affairs can ensure accountability and transparency at local level as well. Kerala state of India initiated m-governance by launching varies services focusing on the utilization of mobile technologies to deliver citizen services which includes electricity and water services billing, road tax and vehicle registration. (Young, 2009)
Strengthening Local governments by providing more autonomous power in fiscal affairs and ensuring citizen involvement is believed to empower people at local level and can bring changes from root level as local governments only know the needs from grassroots. In this paper a wide range of literatures is examined to recognize the trends and issues concerning fiscal autonomy and financial accountability mechanism at local governments around the world. Most of the local government experiences indicate positive relations between financial decentralization and better governance. In this age of globalization and Information technology revolution, a more global world with localization of governments is emerging. This trend must be supported by financial empowerment of local bodies and accountability mechanism at local level. Access to untapped revenue sources and digitalization of organization procedures has become an important tool to cope with the challenge of globalization and Information technology revolution nowadays. Bangladesh, a developing nation which has a huge population living under local government bodies and the weakness of her local government is depicted as the root cause of her dysfunctioning democracy, can be benefited from the lessons of decentralization around the world and can reevaluate her policy regarding local government and decentralization.
# The author of this article is highly indebted to Dr Debapriya Bhattachary, distinguished Fellow at the Centre for Policy Dialogue (CPD) for the write up. A major part of this article was written under his supervision when the author was performing an internship in the institution to fulfill the requirement of the degree of Masters of Public Policy (MPP) of University of Erfurt, Germany under the aegis of German Academic Exchange Service (DAAD) in 2012.
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