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Fiscal Decentralization is a popular economic development strategy among transition and developing countries. This article reviews the advantages of fiscal decentralization in a theoretical context, but critiques the relevance of the standard theory of federalism as it applies to emerging economies. It is argued that the macroeconomic benefits of fiscal centralization, the absence of good instruments of local government finance, and the centralist politics that characterize most low income countries have been strong enough to hold back increased emphasis on local government finance.


Originally published by Wiley in Bahl, Roy. 1999. “Fiscal Decentralization as Development Policy.” Public Budgeting & Finance 19 (2): 59–75.

(c) Wiley. Posted by permission.


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