Fiscal decentralization is essentially the transfer of expenditure responsibilities and revenue assignments to lower levels of government. A sub-national government, being closer to the people, is, in theory, more capable compared to central governments to meet citizen's preferences and demands in public goods and services. Research generally supports that fiscal decentralization has been linked to a variety of outcomes. Among those are:
In South Asia Although several decentralization reforms have taken place during the last 10 years, fiscal decentralization has not yet reached effectively the lower levels of government in most countries in the region. In general, finances have been very centralized. Despite great advances observed in India, Pakistan, and Nepal, there is a variety of problems that countries face in the design of their intergovernmental fiscal relations: Expenditure responsibilities devolved seem to exceed revenue potential of sub-national governments, particularly at the local level. There are overlapping expenditure responsibilities. The transfer system has many weaknesses in design and not been guided by clear objectives. Local governments lack revenue raising power. Local governments show high dependence on transfers from higher levels of government.
India Fiscal Decentralization To Rural Governments Study The Bank carried out the study, "Fiscal Decentralization to Rural Governments, provides a description of panchayat finances in Kerala and Karnataka, and an analysis for local governments in improving the design and monitoring of rural fiscal decentralization. The report made recommendations for the way forward. The recommendations include: Clarifying expenditure assignments. Consolidating schemes. Enhancing panchayat resources. Redesigning transfers. Creating information systems on local finances. Improving accountability.
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