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Fiscal Decentralization Reforms and Local Government Efficiency: An Introduction

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Fiscal Decentralization Reforms

Part of the book series: Public Administration, Governance and Globalization ((PAGG,volume 19))

Abstract

This chapter is dedicated to the introduction into theory of decentralization. We reviewed past and current theories of decentralization from the classical theories of Oates and Tiebout to the current approaches of the second generation of fiscal federalism and provide a summary of the main results. We linked decentralization with the issue of local government efficiency, which describes how well an organization uses resources in producing services, and effectiveness, the degree to which a system achieves its program and policy objectives. We introduced the main determinants of local government efficiency namely information asymmetry, rational ignorance and rational abstention, bureaucratic behavior, competition among municipalities, fiscal illusion, intergovernmental grants and transfers, municipality size, and the environmental and institutional environment.

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Notes

  1. 1.

    A Decision Making Unit is a production system. The elements of this system are individual actors of local government. These include, for example, individual representatives of local governments (mayor), municipal councils and officials. Relationships between system elements have the character of activities. These movements have a dual character (“routing”). This concerns both the activities that take place in the Decision Making Unit/local government system and the activities where local government actors interact with the external environment. Activities have both a formal character and an informal character. The formal character of the activities is influenced by individual legal regulations coming from the external environment. These include, in particular, the Municipalities Act, the Act on Financial Control, the Act on Taxes (Tax Purpose), and possibly other government regulations and government decrees governing the implementation of laws binding for the Decision Making Unit/local government. Formal activities are also influenced by regulations (decrees and regulations). These are internal regulations that elaborate local government as binding ordinances and regulations for the given municipality. In addition to formal activities, the behavior of the Decision Making Unit also affects informal activities. These are unplanned (originally unintended, spontaneous) activities that arise between individual local government actors. These activities take the form, for example, of networks created on the basis of personal sympathy or lack of sympathy. Both types of activities affect the resulting functioning and condition of the system. They affect the functioning of local government and have an impact on efficiency.

  2. 2.

    Information is a key prerequisite for efficient decision making. Neumann and Morgenstern (2004) show that when decision-makers decide in a case of uncertainty, they are guided by two basic principles in the selection and decision-making, the principle of the magnitude of the utility that a certain decision will give them and the probability of the given variant. Also, local government decisions are usually made under conditions of uncertainty. On the voter’s side, we notice a phenomenon for which we use the term “information illusions”. Citizens (voters) believe that more information can reduce the uncertainty in decision making. Voters “incorporate” this assumption into their choice of principals (politicians). They are looking for competent politicians whom they think have sufficient information, and the professional and moral potential to perform their public office.

  3. 3.

    The way to remedy this is to create a customer approach in the provision of public services. In it, citizens have a decisive role as actors who demand public services of a certain quality and quantity. A prerequisite for the functioning of this method of providing public services is the existence of an element (employee of the municipal office) responsible for determining the requirements (demands) of citizens for public services in the given municipality. Query methods and techniques can be a tool for this. The ideal (target status) is such that the given employee of the office, based on the information from the questionnaire, then performs the operationalization of the identified requirements of the public for the qualitative and quantitative parameters of public services. The output is a (variant) recommendation (together with cost-benefit evaluation) on how to appropriately provide the required public services for the given municipality. This proposal is the basis for the council’s deliberations and the final decision. This can be improved (especially in the case of larger fiscal units) by implementing the electronization of public administration.

  4. 4.

    This, for example, results in bureaucracy trying to spend all available resources by the end of the budget year, regardless of the criterion of the efficiency and effectiveness of such an allocation. A characteristic feature of bureaucracy is that it “quasi-identifies itself with the system,” and thus the public interest or the actual mission of the organization can be ignored.

  5. 5.

    These are cases known from the Czech Republic, when politicians ascend to higher floors (functions) until they reach a place where they no longer have the professional capacity. The system (and practices) are set up in the Czech Republic so that politicians do not return to a “lower level,” i.e. to the previous function, which corresponds to their professional capacities, but after a certain time can move on to a higher position within the EU office (even as a commissioner …).

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Authors and Affiliations

  1. Charles University, Prague, Czech Republic

    Michal Plaček

  2. Charles University, Prague, Czech Republic

    František Ochrana

  3. College of Regional Development, Prague, Czech Republic

    Milan Jan Půček

  4. Masaryk University, Brno, Czech Republic

    Juraj Nemec

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  1. Michal Plaček
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  2. František Ochrana
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  3. Milan Jan Půček
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  4. Juraj Nemec
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Plaček, M., Ochrana, F., Půček, M.J., Nemec, J. (2020). Fiscal Decentralization Reforms and Local Government Efficiency: An Introduction. In: Fiscal Decentralization Reforms. Public Administration, Governance and Globalization, vol 19. Springer, Cham. https://doi.org/10.1007/978-3-030-46758-6_1

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