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Introduction: Decentralization refers to the global trend of devolving the responsibilities of centralized governments to regional or local governments. The promise of decentralization is to enhance efficiency (through inter-governmental competition and fiscal discipline) and democratic voice (though enhanced local voice over service provision).  Fiscal federalism – the assignment of tax and expenditure authority to the lowest level of government possible - creates the discipline and market features necessary to ensure productive efficiency.  Decentralization works best in settings where there are strong traditions of democracy, accountability and professionalism in subnational government.  It does not provide a short cut to governmental capacity in situations where these preconditions are absent.  Decentralization may enhance productive efficiency but will undermine allocative efficiency by making redistribution more difficult, especially in areas with regional inequality.  Thus decentralization should be used with caution in situations where there are concerns with inequality, corruption and weak managerial capacity or weak democratic traditions.  The articles profiled below discuss the potential and challenges of decentralization both in the US and in developing countries.

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Decentralization: A Global Trend

Litvack, Jennie, Junaid Ahmad and Richard Bird 1998. "Rethinking Decentralization in Developing Countries,"Washington, DC: The World Bank.  

  • Litvack et al discuss the considerations for implementing decentralization in developing countries. Many of the assumptions made in the literature on decentralization don’t hold for developing countries, such as the presence of exit opportunities, and voice. Possible approaches to this complex problem are discussed.

Tendler, Judith (1997).  Good Governance in the Tropics. Maryland: Johns Hopkins University Press.  

  • Tendler’s research is unique in that it centers on the good government practices and the role of central government in ensuring effective decentralization cases are drawn from Cearà, Brazil.

Prud’homme, Remy (1995).  "The Dangers of Decentralization," World Bank Research Observer 10(2):201.

  • This critique of fiscal federalism theory concludes that a loss of national redistribution of wealth due to decentralization will cause greater localization of wealth, greater disparity between rich and poor regions, and the loss of capacity of the national government to influence the market to soften times of crisis.

Bennett, Robert. 1990. "Decentralization, Intergovernmental Relations and Markets: Towards a Post-Welfare Agenda?" Pp. 1-26 in Decentralization, Local Government and Markets: Towards a Post-Welfare Agenda, ed. Robert Bennett. Oxford: Clarendon Press.  

  • Bennett describes the worldwide movement from "welfarist" policy to "post-welfare" policy. During the post-World War II era, a system of entitlements was developed in many Western nations and the state became a major provider of education, health services, land-use planning, and housing. In recent years, however, there has been a shift in thinking, and in the U.S., the idea of "new federalism" has gained great currency.

Kodras, Janet. 1997. "Restructuring the State: Devolution, Privatization, and the Geographic Redistribution of Power and Capacity in Governance." Pp. 79-96 in State Devolution in America: Implications for a Diverse Society. Ed. Lynn Staeheli, Janet Kodras, and Colin Flint. Urban Affairs Annual Reviews 48. Thousand Oaks, CA: Sage.  

  • Kodras outlines some of the major arguments for and against three methods of changing how government services are provided: privatization, devolution to lower levels of government, and simply abandoning service provision to the nonprofit sector.

Stohr, Walter (2001).  "Introduction" in New Regional Development Paradigms:  Decentralization, Governance and the New Planning for Local-Level Development. Eds. Stohr, Walter and Josefas Edralin and Devyani Mani.  Published in cooperation with the United Nations and the United Nations Centre for Regional Development: “Contributions in Economic History Series,” Number 225.  Westport, CT: Greenwood Press.  

  • Stohr discusses the relationship between globalization and decentralization, and examines decentralization as a tool for achieving equity.

Rodríguez -Pose, A. and Ezcurra, R. (2011). “Is fiscal decentralization harmful for economic growth? Evidence from the OECD countries,” Journal of Economic Geography, 11 (4): 619-643.

  • Decentralization has been promoted as a means to achieve greater economic efficiency and growth. Most of the literature has been concerned with fiscal decentralization rather than political and administrative decentralization. These other types of decentralization can play an important role in shaping policies, the provision of public goods and services and economic outcomes. The interaction between different types of decentralization is also likely to influence the results of these efforts.Theories of Decentralization: The Competitive State in a Global World

Decentralization: Theories of Decentralization

Tiebout, Charles 1956. "A Pure Theory of Local Expenditures,Journal of Political Economy 64:416-424.  

  • In this classic article based on public choice theory, Charles Tiebout puts forth a model for determining the optimum expenditure level for public goods. He treats residents as consumers, who “shop around” for the communities that best fit their preferences. The competition among communities forces them to provide public goods at the most efficient level.

Boyne, George A. 1996. "Competition and Local Government: A Public Choice Perspective.Urban Studies 33 (4-5): 703-721.  

  • Boyne discusses the different types of competition in local government, and the structure and implications of each one.

Peterson, Paul. 1995. The Price of Federalism. Washington, Brookings Institute.

  • In this book, Peterson examines New Federalism in the context of modern economic reality. He asserts that because of the mobility of labor and capital, states are in greater competition with each other than ever before, causing them to focus more on economic development and less on social welfare. Therefore, welfare should remain the responsibility of the federal government, even as other basic governmental programs are devolved.

Peterson, Paul. 1981. City Limits. University of Chicago Press.

Warner, M.E. and A. Hefetz. 2003. "Rural-Urban Differences in Privatization: Limits to the Competitive State," Environment and Planning C: Government and Policy 21(5): 703-718.  

  • Despite two decades of experience with privatization, U.S. local government use of contracting in public service delivery remains relatively flat, and rural governments privatize less than others. Using national data on U.S. local government service delivery from 1992 and 1997, the authors analyze differences in local government service delivery patterns by metropolitan status.

Warner, Mildred and Jennifer Gerbasi. "Rescaling and Reforming the State under NAFTA: Implications for Subnational Authority.International Journal of Urban and Regional Research December 2004 Vol 28(4): 853-73.  

  • This paper describes the new governance features of the North American Free Trade Agreement (NAFTA) and illustrates how they work out at the national, subnational and local scales using cases from the United States and Mexico. The authors show how NAFTA’s governance structure is undermining subnational and local government authority in legislative and judicial arenas.

Warner, M.E., 2003. "Competition, Cooperation and Local Governance," chapter 19 pp 252-262 in Challenges for Rural America in the Twenty First Century, edited by David Brown and Louis Swanson, University Park, PA: Penn State University Press.  

  • Successful decentralization requires administrative and financial capacity and effective citizen participation, but many rural governments lack an adequate revenue base or sufficient professional management capacity. Rural residents have relied more on private markets than government for many services; however, rural areas have also suffered from under development due in part to uneven markets. This chapter explores the emergence of cooperative networks as an alternative to decentralization, focusing on the preservation of equity and voice.

Cerny, Philip G. 1999. "Globalization and the Erosion of Democracy." European Journal of Political Research, 26:2.  

  • In this article Philip Cerny analyzes democracy, specifically its form and function in today’s globalized world. He asserts that liberal democracy is being eroded through increased globalization and internationalism, and therefore factors such as public accountability, responsiveness, policy capacity, and legitimacy are all in decline. The result is the emergence of ad hoc public and private governance structures that undermine the democratic state from above and below, leading to a “durable disorder” of overlapping and competing institutions.

Donahue, John D. 1997. "Tiebout? or Not Tiebout? The Market Metaphor and America’s Devolution Debate."Journal of Economic Perspectives 11(4) 73-82.  

  • Donahue outlines the discontinuities between the Tiebout model of interjurisdictional competition and the reality of American cities in the age of devolution.

Donahue, John D. 1997. Disunited States. New York: Basic Books.  

  • Donahue argues that decentralization is not, in fact, the solution to America’s governance problems. There is little evidence that the public sector will be more efficient at the state level than it is the federal level. Instead, America should focus on the challenges of mitigating cynicism in government on the public’s part and narrowing the gap between the benefits expected from government and citizen willingness to endure taxation.

Brenner, Neil (1999)."Globalisation as Reterritorialisation: The Re-scaling of Urban Governance in the European Union,Urban Studies 369(3):431-451.  

  • Globalization results in reterritorialization: to adapt to global competition, states are reorganizing themselves to give their major urban areas new capacity. It is the implications of this reterritorialization, stemming from the contemporary capitalist expansion, that Brenner argues we must properly conceptualize and study as part of the emerging literature on globalization.

Jessop, Bob 1997. "The Entrepreneurial City: Re-imaging localities, redesigning economic governance or restructuring capital," pp 28-41 in Transforming Cities: Contested Governance and New Spatial Divisions ed. by Nick Jewson and Susanne MacGregor. Routledge: London.  

  • Jessop contextualizes the idea of the entrepreneurial city. He claims that the forces of globalization, including the decreasing sovereignty of the national state, make it necessary for cities to adopt new methods of production and governance in order to become the drivers of the global economy.

Brenner, Neil (2004). “Urban Governance and the Production of New State Spaces in Western Europe, 1960-2000,” Review of International Political Economy, 11(3): 447-488.

  • Neil Brenner maps out the patterns of urban governance to understand how it has altered and been altered by fluctuations in the scales of state spatiality. First, Brenner lays a foundation for his analysis by defining state spatiality in the narrow sense – distinct territorial boundaries that encompass a wide range of state imposed regulations – and in the integral sense – the state intervention based on socioeconomic patterns. Unlike the standard view of state space as a simple, unmoving geographic boundary, Brenner encourages us to see state space as a continuous process in which the inherited policies and institutions of the past help determine the role and scale of the state in the present and future.

Devolution and Welfare Reform in the US

Katz, Michael 2001. The Price of Citizenship: Redefining the American Welfare State. New York: Metropolitan Books.  

  • Michael Katz delineates the current state of social policy in the United States, focusing on the political and economic trends that limit welfare and its ability to alleviate poverty and inequality. He discusses inaccurate views Americans hold of welfare, the ascension of conservative political theory, the devolution to the states, the increased use of private markets to provide social goods, and the impact of these trends on citizenship.


Warner, M.E. 2001. "State Policy Under Devolution: Redistribution and Centralization," National Tax Journal VolLIV(3):541-556.

  • Political theory argues redistributive spending is best made at higher levels of government, but under devolution, state policy becomes the most significant arena for redistributive activity. Using Census of Government data for 1992, this paper compares Federal and State aid to county areas and considers the role of state centralization of fiscal responsibility on local revenue raising efforts. Both the magnitude and redistributive nature of state aid are greater than federal aid. However, because state centralization has a large impact on reducing local fiscal stress, differences in state policy choices create a very uneven landscape of local tax effort.

Peterson, Paul 1995. "Who Should Do What? Divided Responsibility in the Federal System,The Brookings Review 13(2): 6-11.     

  • Peterson discusses the roles of local, state and federal government in the provision of two types of public policies, developmental and redistributive. He points to recent history to argue that state and local governments should fund the development necessary to sustain economic growth, but that federal government should provide redistribution necessary to compensate those that do not benefit from the growth.

Powers, Elizabeth. 1999. "Block Granting Welfare: Fiscal Impact on the States," Occasional Paper 23.Washington DC: The Urban Institute.   

  • Powers discusses the effects of a change from matching funds to block grants on states’ welfare programs. It is possible that a “race to the bottom” will be triggered by states trying to cut costs, resulting in stricter eligibility requirements and reduced benefits.

Weir, Margaret. 1997. “The Uncertain Future of Welfare Reform in the Cities.” The Brookings Review Winter 1997 Vol. 15 No. 1 Pages 30-33. 

  • Margaret Weir examines the effect that the Welfare Reform Act of 1996 will have on cities, as the responsibility for social welfare is shifted from the national level to the state level, and in turn, to cities and urban counties.

Conlan, Timothy 1998. From New Federalism to Devolution: Twenty Five Years of Intergovernmental Reform. Washington, DC: Brookings Inst. Press. Chapter 14: "Intergovernmental Reform and the Future of Federalism."   

  • Conlon examines the development of conservative theories of devolution through the tenures of Nixon, Reagan and Gingrich. The move toward decentralization can be viewed as the decline of the nation state as a result of the interplay of political and economic factors. The decline of the nation state and the increasing demands of citizens from local governments has led to the creation of sub-national entities that are required to take on more responsibility for provision of goods and services than before, and hence demand greater local autonomy and policy devolution.

Gold, Steven D. 1996. "Issues Raised by the New Federalism.National Tax Journal 49(2) 273-87. 

  • This article explains the possible effects of devolution on public finance in the United States at the federal, state and local levels. Gold focuses on the three major aspects of New Federalism that affect state and local governments: 1) They would receive less federal aid. 2) Some of the most important aid programs would be changed from matching to non-matching grants. 3) States would have more flexibility in operating programs.