Advantages Of Decentralization

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The arguments dwelled on the grounds of efficiency and states that for the sake of efficiency, District Assemblies should distinguish between services based on some characteristics. These characteristics are: pure public goods which should be financed by user charges and externalities which are financed by intergovernmental transfers. In addition to that Gandhi (1983) puts a challenge to this simplified classification of services. Gandhi (1983) argues the simplification of the classification has resulted in conflicts in its application. For instance, clean water supply can be a public utility which has significant externalities. Public utility includes services such as national defense, mosquito abatement, pollution control, disease control…show more content…
Decentralization increases competition in the public sector, leading to a relatively lower tax burden- i.e. given mobility of residents and capital in pursuit of fiscal gains, the greater the numbers of alternative tax jurisdictions, the less likely that ‘excessive taxes will be levied; 2. Conversely, centralization restricts the ability of states to compete (as in (i) since a growing national share of total government money weakens the relative significance of local governments; and 3. Centralization may generate a greater reliance on inflationary finance given that only the national government is able to print money. Oates (1985) argued that decentralization would tend to increase total public resource mobilization. An empirical investigation conducted by Oates (1972) for 42 countries reveals a strong and statically significant negative association. The study was done by regressing tax revenue (size of public sector) on a fiscal decentralization ratio (central revenue as proportion of the total). In another study, Oates (1985) explored the question again for 43 countries (18 industrial and 25 developing). The results proved that for the entire sample, the rank correlation between the size of the public sector and the extent of decentralization is strong and significantly negative. Meaning a relatively decentralized public sector is typically

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