Decentralization and governance

The most important theoretical argument concerning decentralization is that it can improve governance by making government more accountable and responsive to the governed. Improving governance is also central to the motivations of real-world reformers, who bear risks and costs in the interest of devolution. But the literature has mostly focused instead on policy-relevant outcomes, such as education and health services, public investment, and fiscal deficits. This paper examines how decentralization affects governance, in particular how it might increase political competition, improve public accountability, reduce political instability, and impose incentive-compatible limits on government power, but also threaten fiscal sustainability.