Financial Resources

Design matters: Local resources must match local tasks
Decentralisation of political and administrative powers is only meaningful if the local authorities have the necessary resources to effectively make use of their powers. Adequate financial resources may be transferred from the national budget, or the local governments may have taxing powers (or other sources of income) of their own. In the latter case, fiscal equalisation mechanisms should ensure that all citizens have access to a minimal standard of local public services, also in parts of the country with limited economic potential for raising local taxes.

But local good governance does not only depend on financial resources. Human resources are needed to fulfil local tasks. In many cases, tasks are transferred to local authorities which do not yet have the human capacities needed to take up the new responsibilities. Capacity building must accompany the transfer of tasks. Moreover, with decentralisation, the role of central authorities often change as well: They are not any more operationally responsible for a certain task, but they may keep a monitoring role in many cases, asking for a very different set of capacities.

Therefore, political and administrative decentralisation must go hand in hand with fiscal considerations and considerations of other resources. More generally, for decentralisation to be successfull and sustainable, all the three aspects, political, administrative and fiscal, have to be taken into account.