2.1 The development of democracy and decentralization has increasingly captured global interest. Since the late 1980s many countries have embarked upon the road to deliver aspects of decentralization. There is no standard model of decentralization. Instead, the processes and procedures vary depending upon the original aims and objectives, and also upon the institutional and implementation arrangements.
2.2 Decentralization can come in a variety of forms such as political, administrative or fiscal decentralization, and through deconcentration and devolution. The different forms are distinguishable by their different characteristics, policy implications, and conditions for success. For example:
In the case of deconcentration, the central government disperses a number of its functions, such as planning and finance, from the centre to regional branch offices while still retaining overall control. Deconcentration is primarily an administrative arrangement with the decision-making authority still residing with central government ministries.
Under devolution, the central government transfers certain powers and responsibilities to lower levels of government. The main purpose is to bring the government closer to the people and to increase transparency and accountability. In this environment, a local government acts within the overall policy parameters set by the central government, but it operates autonomously in relation to how it carries out its functions.
2.3 This guide primarily addresses decentralization through devolution. However, the design and implementation of a rural property taxation system as outlined in this guide is also relevant for countries introducing decentralization through deconcentration.
2.4 Decentralization to local governments is extremely complex. It involves issues of finance, administration, control, regulation, reporting and accountability, all of which are elements of the inter-relationship between different levels of government. Also, unfortunately, the implementation of decentralization has not been particularly smooth. Despite the combined political and economic forces that are driving the demand for decentralization, there is often a gap between reality and the goal that may be defined in policy and legislation.
2.5 The main objectives of decentralization are to improve the delivery of services by the public sector and to enhance the quality of life of citizens. Decentralization has been seen as an integral component of tackling challenges such as the increasing demands that are being placed on public services, and growing public expectations regarding the quality of services. From a policy perspective, decentralization should improve the planning and delivery of public services by incorporating local needs and conditions while at the same time meeting regional and national objectives.
2.6 In many countries, decentralization has been proposed for economic reasons. There may be diseconomies of scale in delivering some services at the national or even regional level, which means that the local delivery of services can be less expensive.
Reasons why governments decide to embark on decentralization include:
2.7 Decentralization is also proposed to strengthen democracy by moving the level of decision-making closer to those most affected by government actions. One expectation is that the delivery of services should improve if the diverse demands and needs of the population are served by local officials who have better information on what people want. Decentralization should be characterized by public accountability if local governments are to be subject to democratic control. In such a form, citizens should influence the decisions made by the elected councils of local governments.
2.8 Decentralization thus forms an important component of the development of democracy, for example, as reflected in the European Charter of Local Self-Government adopted by the Council of Europe in 1985. This Charter identifies several components as the basis for decentralizing public tasks and financing, including the following:
Local self-government denotes the rights and the abilities of local governments, within the limits of law, to regulate and manage a substantial share of public affairs under their own responsibility and in the interest of the local population (art. 3.1).
Public responsibilities shall generally be exercised, in preference, by the governments which are closest to the citizens. (art. 4.3).
Local governments shall be entitled, within national economic policy, to adequate financial resources of their own, of which they may dispose freely within the framework of their powers (art. 9.1).
At least a part of the resources should be derived from local taxes and charges of which, within the limits of the statute, the local governments shall have the power to determine the rate (art. 9.3).
2.9 The scope of services allocated to local governments has been gradually widening. While countries have developed their own mix of the share of responsibilities between the various levels of government, typical responsibilities of local government are shown in Box 2.
2.10 Decentralization is not a panacea as there are limits to what can be achieved given the mosaic of cultural, historic, economic, legal and financial constraints facing countries. Restoring or establishing a balance of power and responsibility among different levels of government has usually presented significant political and administrative challenges. Devolution of powers to local governments requires substantial shifts in political, financial, and administrative authority. Importantly, in some countries it represents a major step forward in the dismantling of central command structures.
2.11 A problem facing many developing countries is that the central government does not already provide an adequate level of services uniformly throughout the country. Instead, many government services are relatively easily available only to those living in the major cities, and there is a lack of presence of central government agencies in outlying regions. In such cases, effective decentralization requires access to new resources in order to provide a more uniform level of service in all parts of the country. Efforts to provide for the delivery of services by local governments cannot involve merely the transfer of resources from the centre where these resources do not exist in the first place. In such a context, the goals of decentralization will require substantial overall increases in financial and human resources.
2.12 The pattern of local government development has seen the creation of hundreds, or even thousands, of small local governments in some countries. There is a real challenge of assuring competent administration of such small administrative units given their available resources.
2.13 The list of services in Box 2, while not exhaustive, demonstrates the magnitude of the problem that has been created by the decentralization of responsibilities to local government. Many rural towns and villages currently do not generate sufficient local tax revenue to meet the cost of providing services. This has inevitably led to rural local governments being highly dependent upon grants from the central government. In addition, the inability of small rural communities to provide the necessary services has resulted in larger cities playing a strong role in providing services not only in their own jurisdictions, but also to surrounding rural communities. Thus, many small rural towns and villages tend to be merely political units, rather than true service providers.
2.14 Unlike the towns in the countryside, capital cities have tended to be more successful in raising necessary taxes and funds to support social and economic development programmes. Because of the crucial financial and political significance of the capital cities, they have been a focus of sustained investment and the development of infrastructure and services. This emphasis has usually been to the disadvantage of the smaller rural communities.
2.15 Many countries have tended to move away from pursuing a programme of full decentralization by adopting a mixture of deconcentration and devolution of powers and responsibilities. A pragmatic approach often taken is to consider a balance between centralization and decentralization. The challenge is to identify what should be considered as local responsibilities and what should remain as central ones. The financing of local responsibilities is discussed in more detail in the following chapter.