Skip to main content Accessibility help
Hostname: page-component-558cb97cc8-fjc52 Total loading time: 0.697 Render date: 2022-10-06T08:00:10.442Z Has data issue: true Feature Flags: { "shouldUseShareProductTool": true, "shouldUseHypothesis": true, "isUnsiloEnabled": true, "useRatesEcommerce": false, "displayNetworkTab": true, "displayNetworkMapGraph": true, "useSa": true } hasContentIssue true

5 - Decentralized Rule and Revenue

Published online by Cambridge University Press:  18 February 2019

Jonathan A. Rodden
Stanford University, California
Erik Wibbels
Duke University, North Carolina
Get access


In order to understand the conditions under which decentralization might foster or undermine accountability and good governance, researchers have focused attention on the mechanisms through which local governments are funded. In both observational and quasi-experimental studies, intergovernmental grants appear to be associated with a range of undesirable outcomes. In a smaller group of studies, there is more tentative evidence that efforts at enhanced local revenue mobilization are associated with improvements in governance and citizen engagement. However, in much of the developing world, the conditions for robust local taxation and strong reliance on local revenues to fund local public goods are not met. Spatial income inequality and local political opposition, among other factors, have blocked the development of the local tax base. Academics, governments, and aid practitioners still have much to learn about 1) the conditions under which local taxation can be successfully expanded and 2) the best ways to improve the distribution and oversight of intergovernmental grants so as to reduce corruption and inefficiency. The challenges can be met through a collaborative research agenda that embeds learning opportunities in aid programming and government reforms from their inception.
Decentralized Governance and Accountability
Academic Research and the Future of Donor Programming
, pp. 91 - 114
Publisher: Cambridge University Press
Print publication year: 2019

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)


Ambrosanio, Maria Flavia, and Bordignon, Massimo, 2006. “Normative versus Positive Theories of Revenue Assignments in Federations.” In Ahmad, Ehtisham and Brosio, Giorgio (eds.), Handbook of Fiscal Federalism. Cheltham: Edward Elgar, 306338.Google Scholar
Aragon, Fernando. 2013. “Local Spending, Transfers, and Costly Tax Collection.” National Tax Journal 66(2): 343370.CrossRefGoogle Scholar
Athanassopoulos, Antreas, and Triantis, Konstantino. 1998. “Assessing Aggregate Cost Efficiency and the Related Policy Implications for Greek Local Municipalities.” INFOR 36(3): 6683.Google Scholar
Bahl, Roy W., and Linn, Johannes F.. 1992. Urban Public Finance in Developing Countries. Oxford: Oxford University Press.Google Scholar
Balaguer-Coll, Maria, Prior-Jimenez, Diego, and Vela-Bargues, Jose. 2002. Efficiency and Quality in Local Government Management. The Case of Spanish Local Authorities, Universitat Autònoma de Barcelona, WP 2002/2.
Barkan, Joel, and Holmquist, Rank. 1989. “Peasant-State Relations and the Social Base of Self-Help in Kenya.” World Politics 41(3): 359380.CrossRefGoogle Scholar
Berry, Christopher, and Fowler, James. 2016. “Cardinals or Clerics? Congressional Committees and the Distribution of Pork.” American Journal of Political Science 60(3): 692708.CrossRefGoogle Scholar
Bird, Richard. 2010. “Subnational Taxation in Developing Countries: A Review of the Literature.” Journal of International Commerce, Economics and Policy 2(1): 139161.CrossRefGoogle Scholar
Bloechlinger, Hansjoerg, and King, David. 2006. “Less Than You Thought: The Fiscal Autonomy of Sub-Central Governments.” OECD Economic Studies 43(2): 155188.Google Scholar
Boadway, Robin, and Shah, Anwar. 2007. Intergovernmental Fiscal Transfers: Principles and Practice. Washington, DC: World Bank Publications.Google Scholar
Brennan, Geoffrey, and Buchanan, James. 1980. The Power to Tax: Analytic Foundations of a Fiscal Constitution. Cambridge: Cambridge University Press.Google Scholar
Brollo, Fernanda, Nannicini, Tommaso, Perotti, Roberto, and Tabellini, Guido. 2013. “The Political Resource Curse.” American Economic Review, 103(5): 17591796.CrossRefGoogle Scholar
Bruekner, Jan. 2009. “Partial Fiscal Decentralization.” Regional Science and Urban Economics 39(1): 2332.CrossRefGoogle Scholar
Buchanan, James, and Wagner, Richard. 1977. Democracy in Deficit: The Political Legacy of Lord Keynes. Indianapolis, IN: Liberty Fund.Google Scholar
Cabral, Marika, and Hoxby, Caroline. 2015. “The Hated Property Tax: Salience, Tax Rates, and Tax Revolts.” NBER Working Paper no. 18514.
Careaga, Maite, and Weingast, Barry R.. 2003. “Fiscal Federalism, Good Governance, and Economic Growth in Mexico,” in Rodrik, Dani (ed.), In Search of Prosperity: Analytic Narratives on Economic Growth. Princeton, NJ: Princeton University Press.Google Scholar
Caselli, Francesco, and Michaels, Guy. 2013. “Do Oil Windfalls Improve Living Standards? Evidence from Brazil.” American Economic Journal: Applied Economics 5(1): 208238.Google Scholar
Dahlberg, Matz, Mörk, Eva, Rattsø, Jørn, and Hanna, Ågren. 2006. “Using a Discontinuous Grant Rule to Identify the Effect of Grants on Local Taxes and Spending.” Journal of Public Economics 92(12): 23202335.CrossRefGoogle Scholar
Dahlby, Bev, and Ferede, Ergete. 2016. “The Stimulative Effects of Intergovernmental Grants and the Marginal Cost of Public Funds.” International Tax and Public Finance 23(1): 114139.CrossRefGoogle Scholar
De Borger, Bruno, and Kerstens, Kristiaan. 1996. “Cost Efficiency of Belgian Local Governments: A Comparative Analysis of FDH, DEA, and Econometric Approaches.” Regional Science and Urban Economics 26(2): 145170.CrossRefGoogle Scholar
Desai, Raj, Freinkman, Lev, and Goldberg, Itzhak. 2005. “Fiscal Federalism in Rentier Regions: Evidence from Russia.” Journal of Comparative Economics 33(4): 814834.CrossRefGoogle Scholar
Devarajan, Shantayanan, Khemani, Stuti, and Shah, Shekhar. 2007. “The Politics of Partial Decentralization.” Unpublished paper, World Bank.
Díaz-Cayeros, Alberto. 1997. “Asignación política de recursos en el federalismo mexicano incentivos y limitaciones.” Perfiles Latinoamericanos 6(10).Google Scholar
Dragu, Tiberiu, and Rodden, Jonathan. 2011. “Representation and Redistribution in Federations.” Proceedings of the National Academy of Science 108(21): 86018604.CrossRefGoogle ScholarPubMed
Dynes, Adam, and Martin, Lucy. 2016. “Revenue Sources and Electoral Accountability: Experimental Evidence from Local U.S. Policymakers.” Unpublished paper, University of North Carolina, Chapel Hill.Google Scholar
Ferraz, Claudio, and Finan, Frederico. 2008. “Exposing Corrupt Politicians: The Effects of Brazil’s Publicly Released Audits on Electoral Outcomes.” Quarterly Journal of Economics 12(2): 703745.CrossRefGoogle Scholar
Filimon, Radu, Romer, Thomas, and Rosenthal, Howard. 1982. “Asymmetric Information and Agenda Control.” Journal of Public Economics 17(1): 5170.CrossRefGoogle Scholar
Fisher, Ronald. 1982. “Income and Grant Effects on Local Expenditure: The Flypaper Effect and Other Difficulties.” Journal of Urban Economics 12: 324345.CrossRefGoogle Scholar
Fisman, Raymond, and Gatti, Roberta. 2002. “Decentralization and Corruption: Evidence from U.S. Federal Transfer Programs.” Public Choice 113(1–2): 2535.CrossRefGoogle Scholar
Freinkman, Lev, and Plekhanov, Alexander. 2005. “What Determines the Extent of Fiscal Decentralization? The Russian Paradox.” World Bank Policy Research Working Paper No. 3710.
Gadenne, Lucie. 2017. “Tax Me, But Spend Wisely? Sources of Public Finance and Government Accountability.” American Economic Journal: Applied Economics 9(1): 274–314.CrossRef
Gervasoni, Carlos. 2010. “Measuring Variance in Subnational Regimes: Results from an Expert-Based Operationalization of Democracy in the Argentine Provinces.” Journal of Politics in Latin America 2(2): 1352.Google Scholar
Gervasoni, Carlos. 2011. “A Rentier Theory of Subnational Regimes: Fiscal Federalism, Democracy, and Authoritarianism in the Argentine Provinces.” World Politics 65: 302340.Google Scholar
Geys, Benny, Heinemann, Friedrich, and Kalb, Alexander. 2010. “Voter Involvement, Fiscal Autonomy and Public Sector Efficiency: Evidence from German Municipalities.” European Journal of Political Economy 26: 265278.CrossRefGoogle Scholar
Geys, Benny, and Moesen, Wim. 2009. “Exploring Sources of Local Government Technical Inefficiency: Evidence from Flemish Municipalities.” Public Finance and Management 9(1): 129.Google Scholar
Gordon, Nora. 2004. “Do Federal Grants Boost School Spending? Evidence from Title 1.” Journal of Public Economics 88(9–10): 17711792.CrossRefGoogle Scholar
Gramlich, Edward. 1977. “Intergovernmental Grants: A Review of the Empirical Literature.” In Oates, Wallace (ed.), The Political Economy of Fiscal Federalism. Lexington, MA: D.C. Heath, 219240.Google Scholar
Grossman, Guy, Pierskalla, Jan, and Dean, Emma Boswell. 2017. “Government Fragmentation and Public Goods Provision.” Journal of Politics 79(3): 823840.CrossRef
Haber, Stephen, and Menaldo, Victor. 2011. “Do Natural Resources Fuel Authoritarianism? A Reappraisal of the Resource Curse.” American Political Science Review 105(1): 126.CrossRefGoogle Scholar
Hamilton, Jonathan. 1986. “The Flypaper Effect and the Deadweight Loss from Taxation.” Journal of Urban Economics 19(2): 148155.CrossRefGoogle Scholar
Hines, James R., and Thaler, Richard H.. 1995. “Anomalies: The Flypaper Effect.” Journal of Economic Perspectives 9(4): 217226.CrossRefGoogle Scholar
Inman, Robert. 1971. “Towards an Econometric Model of Local Budgeting.” In Proceedings of the 64th Annual Conference on Taxation. Lexington, KY: National Tax Association, 699719.Google Scholar
Kalb, Alexander. 2010. “The Impact of Intergovernmental Grants on Cost Efficiency: Theory and Evidence from German Municipalities.” Economic Analysis and Policy 40(1): 2348.Google Scholar
Knight, Brian. 2002. “Endogenous Federal Grants and Crowd-Out of State Government Spending: Theory and Evidence from the Federal Highway Aid Program.” American Economic Review 92(1): 7192.CrossRefGoogle Scholar
Leibenstein, Harvey. 1966. “Allocative Efficiency vs. ‘X-Efficiency.’” American Economic Review 56(3): 392415.Google Scholar
Levi, Margaret. 1988. Of Rule and Revenue. Berkeley, CA: University of California Press.Google Scholar
Levitas, Anthony. 2011. “Too Much of a Good Thing? Own Revenues and the Political Economy of Intergovernmental Finance Reform: The Albanian Case.” Urban Institute Center on International Development and Governance Working Paper 2011-04.
Litschig, Stephan. 2008. “Three Essays on Intergovernmental Transfers and Local Public Services in Brazil.” PhD dissertation. New York, NY: Columbia University.
Litschig, Stephan, and Morrison, Kevin. 2013. “The Impact of Intergovernmental Transfers on Education Outcomes and Poverty Reduction.” American Economic Journal: Applied Economics 5(4): 206240.Google Scholar
Loikkanen, Heikki, and Susiluoto, Ilkka. 2005. “Cost Efficiency of Finnish Municipalities in Basic Service Provision 1994–2002.” Paper presented at the 45th Congress of the European Regional Science Association, Amsterdam, the Netherlands.
Lutz, Byron. 2010. “Taxation with Representation: Intergovernmental Grants in a Plebiscite Democracy.” Review of Economics and Statistics 92(2): 316332.CrossRefGoogle Scholar
Martin, Lucy. 2014. “Taxation, Loss Aversion, and Accountability: Theory and Experimental Evidence for Taxation’s Effect on Citizen Behavior.” Unpublished paper, Innovations for Poverty Action.
Martinez, Luis. 2016. “Sources of Revenue and Government Performance: Evidence from Colombia.” Unpublished paper, London School of Economics and Political Science.
Mattos, Enlinson, Rocha, Rabiana, and Arvate, Paulo. 2011. “Flypaper Effect Revisited: Evidence for Tax Collection Efficiency in Brazilian Municipalities.” Estudos Económicos 41(2).Google Scholar
McKinnon, Ronald I. 1997. “Market-Preserving Fiscal Federalism in the American Monetary Union.” In Blejer, Mario I. and Ter-Minassian, Teresa (eds.), Macroeconomic Dimensions of Public Finance. New York, NY: Routledge, 7393.Google Scholar
Monteiro, Joana and Ferraz, Claudio. 2010. “Does Oil Make Leaders Unaccountable? Evidence from Brazil’s Offshore Oil Boom.” Unpublished paper, PUC-Rio.
Moore, Mick. 1998. “Death without Taxes: Democracy, State Capacity, and Aid Dependence in the Fourth World.” In Robinson, Mark and White, Gordon (eds.), The Democratic Developmental State. New York, NY: Oxford University Press, 5067.Google Scholar
Morrison, Kevin. 2009. “Oil, Nontax Revenue, and the Redistributional Foundations of Regime Stability.” International Organization 63: 107138.CrossRefGoogle Scholar
Mueller, Dennis. 2003. Public Choice III. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
North, Douglas, and Weingast, Barry. 1989. “Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in 17th Century England.” Journal of Economic History 49(4): 803832.CrossRefGoogle Scholar
Olken, Benjamin. 2006. “Corruption and the Costs of Redistribution: Micro Evidence from Indonesia.” Journal of Public Economics 90(4–5): 853870.CrossRefGoogle Scholar
Olken, Benjamin. 2007. “Monitoring Corruption: Evidence from a Field Experiment in Indonesia.” Journal of Political Economy 115(2): 200249.CrossRefGoogle Scholar
Olken, Benjamin, and Singhal, Monica. 2011. “Informal Taxation.” American Economic Journal: Applied Economics 3: 128.Google ScholarPubMed
Olson, Mancur. 1969. “The Principle of Fiscal Equivalence: The Distribution of Responsibilities among Different Levels of Government.” American Economic Review 59(10): 479487.Google Scholar
Ostrom, Elinor. 1991. Governing the Commons: The Evolution of Institutions for Collective Action. Cambridge: Cambridge University Press.Google Scholar
Paler, Laura. 2013. “Keeping the Public Purse: An Experiment in Windfalls, Taxes, and the Incentives to Restrain Government.” American Political Science Review 107(4): 706725.CrossRefGoogle Scholar
Persson, Torsten, and Tabellini, Guido. 2000. Political Economics: Explaining Economic Policy. Cambridge, MA: MIT Press.Google Scholar
Pöschl, Caroline, and Weingast, Barry. “The Fiscal Interest Approach: The Design of Tax and Transfer Systems,” In Faguet, Jean-Paul and Pöschle, Caroline, eds. Is Decentralization Good for Development? Perspectives from Academics and Policy Makers. Oxford: Oxford University Press.
Raich Portman, Uri. 2004. “Impacto de la descentralización del gasto en los municipios mexicanos.” CIDE, División de Economía, Documento de trabajo No. 281.
Reinikka, Ritva, and Svensson, Jakob. 2004. “Local Capture: Evidence from a Central Government Transfer Program in Uganda.” Quarterly Journal of Economics 119(2): 679705.CrossRefGoogle Scholar
Rodden, Jonathan. 2004. “Comparative Federalism and Decentralization: On Meaning and Measurement.” Comparative Politics 36(4): 481500.CrossRefGoogle Scholar
Rodden, Jonathan. 2006. Hamilton’s Paradox: The Promise and Peril of Fiscal Federalism. Cambridge: Cambridge University Press.Google Scholar
Rodden, Jonathan, and Wibbels, Erik. 2002. “Beyond the Fiction of Federalism: Macroeconomic Management in Multi-Tiered Systems.” World Politics 54(4): 494531.CrossRefGoogle Scholar
Ross, Michael. 2004. “Does Taxation Lead to Representation?British Journal of Political Science 34: 229249.CrossRefGoogle Scholar
Shleifer, Andrei, and Vishny, Robert W.. 1998. The Grabbing Hand: Government Pathologies and Their Cures. Cambridge, MA: Harvard University Press.Google Scholar
Silkman, Richard, and Young, Dennis. 1982. “X-Efficiency and State Formula Grants.” National Tax Journal 35(3): 383397.Google Scholar
Singh, Nirvikar, and Srinivasan, T. N.. 2006. “Federalism and Economic Development in India: An Assessment.” SSRN:
Van der Ploeg, Frederick. 2011. “Nature Resources: Curse or Blessing?Journal of Economic Literature 49(2): 366420.CrossRefGoogle Scholar
Végh, Carlos, and Vuletin, Guillermo. 2016. “Unsticking the Flypaper Effect Using Distortionary Taxation.” NBER Working Paper No. 22304.
Wallis, John Joseph. 2004. “Constitutions, Corporations, and Corruption: American States and Constitutional Change, 1842–1852.” NBER Working Paper 10451.CrossRef
Weigel, Jonathan. 2017. “Building State and Citizen: How Tax Collection in Congo Engenders Citizen Engagement with the State.” Unpublished paper, London School of Economics.
Weingast, Barry. 2014. “Second Generation Fiscal Federalism: Political Aspects of Decentralization and Economic Development.” World Development 53: 1425.CrossRefGoogle Scholar
Wilson, L. S. 1992. “The Harambee Movement and Efficient Public Good Provision in Kenya.” Journal of Public Economics 48: 119.CrossRefGoogle Scholar
Zhuravskaya, Ekaterina. 2000. “Incentives to Provide Local Public Goods: Fiscal Federalism, Russian Style.” Journal of Public Economics 76(3): 337368.CrossRefGoogle Scholar
Cited by

Save book to Kindle

To save this book to your Kindle, first ensure is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about saving to your Kindle.

Note you can select to save to either the or variations. ‘’ emails are free but can only be saved to your device when it is connected to wi-fi. ‘’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.

Find out more about the Kindle Personal Document Service.

Available formats

Save book to Dropbox

To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Dropbox.

Available formats

Save book to Google Drive

To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Google Drive.

Available formats