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As the developing world urbanises, there is increasing pressure to provide local public goods and local governments are expected to play an important role in their provision. However, there is little work on the nature of capacity deficits faced by local governments and whether these deficits are acting as a constraint on performance.
We use financial accounts data from Punjab’s local governments for 2018-19 to measure their ability to utilise budgets and find that there is considerable variation in this metric across local governments. We supplement this with a management survey with the top managers whose decisions affect budget utilisation in a random sample of 129 out of 193 urban local governments in Punjab.
We find that the capacity deficits in local governments are particularly challenging in terms of human resource capabilities, the adoption of automated systems, and legal and enforcement capacity. We also find that better human resource capabilities and the use of managerial incentives are positively correlated with budget utilisation. Our evidence provides new insights on the importance of management and human resource capabilities and systems capacity in local governments in a developing country setting