Ideas for growth session 5: Governance, Accountability and Political Economy

In the ‘Governance, Accountability and Political Economy’ session, chaired by Gerard Padro i Miquel (LSE and IGC) and Eliana la Ferrara (Bocconi and IGC), the focus was on decentralization and fiscal sharing. Dilip Mookherjee (Boston University and IGC India-Central) discussed the policy relevant research gap on decentralization. Research has shown so far is that in general, decentralization is more likely to succeed in promoting accountability and target services the more comprehensive the nature of the decentralization and the less backward or unequal or more socially cohesive the context where it is implemented. Interesting unexplored research questions are: comparing centralization with decentralization; the impact of decentralization on clientelism (whereas ‘elite capture’ has been addressed); short-run vs. long-run impacts of decentralization; what prevents local governments in LDCs from playing key role in business/economic development?

Ruben Enikolopov (Pompeu Fabra and New Economic School) asks whether and how introducing elected local government bodies, in place of customary governance structures, would improve outcomes on objective targeting (e.g. aid), elite capture (e.g. embezzlement, nepotism) and community participation in decision-making. The authors randomly select villages where elected councils are created with varying interaction levels with the official governance structures. Preliminary results show that: elections improve the quality of local governance, but only if there is no ambiguity over the division of responsibility; Parallel institutions without clear assignment of responsibilities increase corruption, and; even externally imposed changes in local governance have an effect.

Discussions continued with a presentation by Julio Escolano (IMF) who provided a policy perspective on issues related to decentralized, rules-based sub-national public finances. Having inclusive growth, public service improvement and efficient use of fiscal resources as main policy objectives, three of the most important issues that need addressing are: transfers, headline fiscal rules, procedural rules and institution building.

Finally, Ali Cheema (LUMS and IGC-Pakistan) shed some light on two questions on federalism, based on an analysis of Pakistan’s constitutional reform of 2010 aimed at empowering the country’s four provinces. The questions are: What conditions determine relative strength of central and regional governments in federations? What is the effect of distributive pressures on design of intergovernmental assignments? Cheema concludes that the form of political competition may be an important determinant of the design of federal assignment; the design of revenue assignments has to create “right” political incentives, and; decentralization could result in regionalization of vote bases and increased horizontal competition.