Fiscal Decentralization and the Efficiency of Public Service Delivery

This study analyzed the impact of fiscal decentralization on the efficiency of public service delivery across 37 countries for the periods ranging from 2008 to 2018. The study employed a stochastic frontier approach to estimate time-varying efficiency coefficients and investigated the impact of different measures of fiscal decentralization on the estimated efficiency coefficients using the panel of fully modified ordinary least squares. The findings revealed that fiscal decentralization improved the efficiency of public service delivery. In specific terms, first, expenditure and tax revenue decentralizations considerably impacted the improvements of the efficiency of public service delivery. Second, it was observed that fiscal decentralization would guarantee sustained improvement in the efficiency gains obtained from public service delivery under favorable political and institutional environments. Third, a low level of decentralization will be detrimental to improving the efficiency of public service delivery. The study recommended that the governments of respective countries should ensure adequate linkages between revenue/tax sources and expenditure assignments and make frantic efforts to strengthen political and institutional environments to improve efficiency gains from public expenditure outcomes.