Intergovernmental Fiscal Relations: Questions of Accountability and Autonomy - Governing the Nexus: Water, Soil and Waste Resources Considering Global Change - page 63

building by local of cials implementing the reforms is, therefore, essential. The

next sections discuss important normative and political economy issues for the
design of the intergovernmental

fiscal framework.

3 Sharing of Responsibilities Among Levels of Government

Decentralization of economic activities to lower tiers of government increases the
proximity between citizens and public decision-makers, which has the potential to
match public policies with the needs of the population better. 5 The more hetero-
geneous the preferences of individuals living in different geographic areas, the
greater the gains that can be accomplished from diversifying the bundles of public
goods and services supplied by subnational governments. Political reasons may also
justify decentralization. By increasing the proximity between citizens and gov-
ernments, decentralization fosters the accountability of politicians and creates
additional spaces for democratic representation.
However, excessive fragmentation in the provision of public goods may generate
losses of economies of scale and coordination problems resulting from spillovers
generated by public goods and services supplied by subnational governments (e.g.
police protection and pollution reduction). The creation of an excessive number of
subnational governments may also increase costs associated with new administra-
tions, numerous local elections and coordination problems. In activities related to
recycling and disposal services, water supply and solid waste collection, service
provision by consortiums of subnational governments or by an upper level of
government frequently generates savings.
Mobility is also an important issue in the division of responsibilities among
different levels of government. If subnational governments are responsive to the
needs and preferences of their population, they will offer different combinations of
goods and services, and charge different local taxes. In case of strong mobility,
individuals will reveal their preferences for public goods by moving to the juris-
diction that better -

ciency gains from decentralization by creating communities that are more
homogeneous and by increasing the competition among subnational governments
to attract population.
Nevertheless, regarding redistributive policies, differentiation among subnational
governments may result in unsustainable policies if resources are highly mobile. As
poor households move to jurisdictions that are more generous, and the rich con-
centrate on less redistributive communities, welfare policies become unsustainable.
Therefore, equity promotion under mobility of

fits their preferences. Therefore, mobility may increase the effi-

tax bases requires policy

5 Refer to Oates ( 1999 ) and Ahmad and Brosio ( 2006 ) for surveys on fiscal decentralization. For
analyses focusing on developing countries, see Smoke ( 2006 ), Shah ( 2008 ), and Fedelino and Ter-
Minassian ( 2010 ).