Linking Local Government Discretion and Accountability in Decentralisation

Development Policy Review, 2010, 28 (3): 259-293
Linking Local Government Discretion and Accountability in Decentralisation

Serdar Yilmaz, Yakup Beris and Rodrigo Serrano-Berthet
Decentralisation offers significant opportunities to improve government accountability by exerting stronger pressures both from below (demand) and above (supply). The literature contains many examples, however, where the potential has not been realised, partly because decentralisation reforms have often been introduced without thinking through their accountability implications. Even when accountability is taken into account, the efforts tend to emphasise either the supply or the demand side of the equation, but not both. Drawing on the sets of literature on fiscal, administrative and political decentralisation, this article presents a methodology for studying this.
Key words: Decentralisation, local governance, accountability
The local governance challenge: linking discretion and accountability
Established theories in economics and political science have articulated the efficiency 1 and accountability gains that could accrue from decentralisation reforms. They include the internalisation of spillover effects (Oates, 1972; Mueller, 1996), the alleviation of information asymmetry and better accountability due to the proximity of principals and agents (Cremer et al., 1996; Raff and Wilson, 1997; Bucovetsky et al., 1998) and competition among local governments (Tiebout, 1956). Nevertheless, the empirical literature is full of examples of failures or mixed results in delivering these gains (Asthana, 2003; Akin et al., 2005). Part of the reason and the starting point of this article is that both the theory and practice of decentralisation have suffered from a partial and fragmented approach, undermining the comprehensive and strategic sequencing required for effective decentralisation reforms. We argue here that to increase the developmental impact of decentralisation to receive the biggest development bang for the buck it is essential to get the right local governance framework, balancing discretion and accountability.
Respectively, Social Development Department, World Bank, 1818 H Street, NW, Washington, DC 20433 (syilmaz@worldbank.org); United Nations Development Program; and World Bank. The findings and conclusions are entirely those of the authors, and do not represent the views of the World Bank, its executive directors, or the countries they represent. 1. In this article we use the term decentralisation to refer to devolution central governments transfer of administrative and financial decision-making authority to local governments that have clear and legally recognised jurisdictions within which they provide public services to constituents to whom they are accountable and not deconcentration and delegation.
The Authors 2010. Journal compilation 2010 Overseas Development Institute. Published by Blackwell Publishing, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA.
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Although decentralisation reforms have been at the centre of public-sector reforms around the world, they come in different types political, administrative, fiscal and forms deconcentration, delegation, devolution in each country. Furthermore, implementation of these reforms is always partial, based on the political context of a country; any illustration is therefore selective and incomplete. 2 As decentralisation reforms become more widespread across the world, they often try to increase the autonomy and discretion of local governments without thinking through the accountability incentive structures that are crucial to obtain more responsive and accountable governments. Even when accountability is taken into account, the efforts tend to emphasise only internal governmental mechanisms, neglecting external citizen vigilance and political oversight, or vice versa. In addition, the relationship between discretion and accountability in decentralisation reforms is further complicated when fiscal, administrative, and political aspects are separated a point often missed in such reform efforts. If the practice of decentralisation has been fragmented and incomplete, it is, to a certain extent, because of the separate and parallel pathways that its political and fiscal theories have followed. Public-finance economists have emphasised the allocative efficiency gains produced by fiscal decentralisation, downplaying the importance of the political dynamics surrounding the capture of those benefits by local elites. Political scientists have highlighted the potential for democratic deepening and citizen oversight, overlooking the fiscal underpinnings required to make local governments work. This article is part of an ongoing attempt to bring these two strands closer together. The first-generation theory of fiscal federalism made the case for decentralised fiscal choice based on its superior allocative efficiency. In his work on the theory of public finance, Musgrave (1959) argued that the policies of subnational branches of governments should be permitted to differ in order to reflect the preferences of residents. Carrying Musgraves arguments further, Oates (1972: 87) formulated the decentralisation theorem as each public service should be provided by the jurisdiction having control over a minimum geographic area that would internalise benefits and costs of such provision. One of the shortcomings of first-generation theory was that it largely assumed that local public officials seek the common good. The more empirical literatures from political science and political economy prove this to be wrong, highlighting in particular the problem of capture by the local elite. An emerging second-generation theory of fiscal federalism is bridging the gap between the economic and political approaches to decentralisation, taking as its point of departure the assumption that participants in political processes (both voters and officials) have their own objective functions that they seek to maximise in a political
2. In 1994, Dillinger reported that of the 75 developing countries with populations greater than 5 million, all but 12 claimed to have embarked on some form of transfer of power from central to local governments. Since then this transfer has been occurring even in inherently centralised countries, such as Jordan (World Bank, 2002), Morocco (Vaillancourt, 1998), Egypt (UNDP, 2004), Yemen (UNCDF, 2007), the Peoples Republic of China (Wong, 1997), Turkey (Tosun and Yilmaz, 2010), and Central and Eastern European countries (Dunn and Wetzel, 2000; Bird et al., 1995) as well as authoritarian regimes like Angola (Felicio and Yilmaz, 2009), Burkina Faso (World Bank, 2009), Ethiopia (Yilmaz and Venugopal, 2008) and Pakistan (World Bank, 2009).
The Authors 2010. Journal compilation 2010 Overseas Development Institute. Development Policy Review 28 (3)
Linking Local Government Discretion and Accountability in Decentralisation 261 setting that provides the constraints on their behaviour. Officials dont simply act on behalf of the welfares of their constituents (Oates, 2005: 356). Decentralisation reforms often lead to tensions among various stakeholders, not surprisingly because decentralisation is about redistribution of power within and between levels of government, with different actors having conflicting interests (Hiskey, 2006). Analysing the political-economy drivers of these reforms is a crucial element of implementing a coherent, well-thought-out decentralisation strategy. Often decentralisation reforms are poorly designed and implemented, due to the lack of understanding of the power and accountability relationship among various actors. The political-economy approach highlights the influence of politics in framing and implementing the reforms, showing that decentralisation is ultimately a highly political process since it seeks to redistribute resources within the territorial confines of a given nation-state (Agrawal et al., 1999: 2) and that the advantage of decentralisation is compromised by capture by the local elites (Seabright, 1996; Bardhan and Mookherjee, 1998). This article adds to this new more integrative body of literature by presenting a methodology to better analyse the linkages between local discretion and accountability in three dimensions: political, administrative, and fiscal. It argues that the relationship between local discretion and accountability is far more complex than accountability being an automatic outcome of increased discretion. In fact, increasing resources allocated for public services and expanding local government discretion over the use of these resources require a special attention to fixing accountability incentive structures. Otherwise, decentralisation efforts will most likely not translate into more accountable government. Furthermore, all these relationships between discretion and accountability (broken 3 down into the supply and demand side of fiscal, administrative, and political aspects) are far from being static. In all its aspects, decentralisation reshapes power relations among the local residents, local governments, producers of local government services, and higher levels of government (including central government). It sets new rules of the
3. The supply side of accountability, which is also known as public accountability, is the hallmark of and a sine qua non for good governance (Bovens, 2005). It is the obligation of public authorities (governments, elected representatives, corporate, and other governing bodies) to explain publicly, fully and fairly, how they are conducting responsibilities that affect the public in important ways. Public accountability refers to the institutionalised practice of account giving; it focuses on public-sector managers who spend public money, exercise public authority, and manage a corporate body under public law. Until recently, efforts to foster good governance focused on strengthening the supply side of accountability within state institutions. Accordingly, donor initiatives supported institution-building in developing countries to increase the supply of governance processes by reforming public institutions. Recently, the development community has concluded that domestic demand for accountability, originating within civil-society entities and the public at large, is at least as important for development as supply-side mechanisms. Also referred to as social accountability, the demand side refers to an approach to building accountability that relies on civic engagement in which ordinary citizens and/or civil-society organisations demand accountability. Recognising the limitations of both electoral and public accountability mechanisms, demand-side/socialaccountability approaches require concerted civic education efforts during the decentralisation reform process. This new understanding encouraged an expansion in the repertoire of instruments through which citizens can hold the state to account, beyond voting. These instruments include traditional practices such as public demonstrations, protests, and investigative journalism, as well as more innovative ones such as participatory budgeting, social audits, or citizen report cards.
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political game, helping new local leaders to emerge in the political competition. It thus redefines the interactions between local leaders and their constituencies. Similarly, as a result of new regulatory and financial powers over procurement and service delivery, the decisions and actions of local governments have a greater impact on local economies. Decentralisation thus leads to new interactions and contractual relationships between local governments, between small and big private firms, and between providers and producers of services and communities and non-governmental organisations. The methodology presented here is not intended as a one-size-fits-all solution to the complex public policy issue of decentralisation. We are aware of the risk of generalising issues that are mostly specific to the local context; thus, our aim is not to offer a universal prescription. However, in the analysis we do not distinguish among different types of local governments, i.e. urban vs. rural, small vs. big, or among provinces in a federal system vs. local governments in a unitary system. We argue that factors presented in the methodology that affect discretion and accountability are valid, regardless of the size or location of the local governments. This is not to suggest that the 4 size and location of the local governments do not matter in a decentralisation context. They are relevant during the decision-making process on what kind of discretion over which services should be accorded to local governments. However, the issues of optimal size and location of local governments are beyond the scope of this article. Our methodology recommends that, once a decision on according a certain level of discretion is made, balancing discretion and accountability is important to increase the developmental impact of decentralisation. In balancing discretion and accountability, the relationship between the central government or its deconcentrated units and local governments presents challenges. Central governments or their deconcentrated units may set the rules under which local governments operate, and provide a portion of the local governments financial resources for service delivery. In these cases, local governments are accountable to higher-level hierarchies for their conduct. This often creates a relationship of upward accountability or dependence on central authorities, which may contradict the arguments about local discretion and accountability. While warning against these risks, the goal here is not to dismiss the important role of central governments in accountability relationships in decentralisation. Provided with a meaningful level of discretionary space, local governments need to be checked and balanced against abuse of their discretions. In this respect, central governments have a set of accountability instruments. However, such formal accountability rules and norms can be too vague and incomplete to deal with every situation and circumstance. They also tend to favour upward accountability towards upper levels of government. In these situations, there is a need for a minimum level of rule of law that will allow local governments to challenge central government encroachment (Bahl and Martinez-Vazquez, 2006). Such
4. The size or the nature of local government (urban vs. rural) should be resolved in the discussion over the kind of expenditure assignments to be allocated to local governments, taking into account efficiency and effectiveness factors and the demands of local populations. Studies about the size of local governments examine the efficiency implications of size in service delivery. According to this literature, smaller governments that are closer to the people should be better able to provide the tax/service delivery package that citizens want (Fox and Gurley, 2006).
Linking Local Government Discretion and Accountability in Decentralisation 263 minimum guarantees will allow independent bodies (such as courts) to arbitrate between 5 the central and local governments in case of conflict or disagreement. 6 Although we accept the general notion of sequencing in decentralisation reforms, we regard it as essential to conduct systematic analyses of country-specific local power structures, interests, and socio-economic conditions to decide the best sequence for a country. Beyond the elements of our methodology, any analysis of local governance structures needs to pay particular attention to the way local governments (both appointed and elected local officials) establish and maintain accountability relationships with their surrounding local actors. Accordingly, the methodology put forward here is simply a diagnostic tool for policy-makers to use when deciding on policy actions, not a panacea. Following this introduction, Section 2 presents the key components of the local political setting and discusses how to make local politics more accountable. Section 3 introduces different dimensions of local administrative discretion and accountability, and Section 4 discusses the linkage between discretion and accountability in fiscal decentralisation. The final section puts forward possible scenarios (trajectories) to achieve a high level of discretion and accountability in decentralisation.
The local political setting and accountability
Analysing the local political setting is crucial to understanding the factors that drive 7 accountability (Lankina, 2008). Decentralisation reforms can restructure the local political setting, reshaping local actor and voter incentives in many ways, such as changing the size of municipalities, reformulating local electoral legislation, and redefining formal relationships between the representative and executive bodies (Keating, 1995). They can also change the structure of legislative bodies, the balance
5. This was the case when the Supreme Court of the Philippines ruled that the central government had to pay the entitlements it was withholding from the local governments (Bahl and Martinez-Vazquez, 2006). 6. Sequencing in this particular context refers only to some preconditions for a successful decentralisation reform. However, there is a broader debate on sequencing. The theoretical literature provides normative discussions on broad steps for sequencing and implementing decentralisation programmes. But this is limited to discretion (devolution of power) and is not linked to accountability. From our perspective, sequencing poses a big question: Can any one of three dimensions of decentralisation (political, administrative, or fiscal) survive without the presence of the others? This is especially the case when countries introduce only fiscal decentralisation without the other dimensions (for example, China and Viet Nam). This article tries to partially address the sequencing issue in the last section under the discussion on trajectories but refrains from making conclusive statements as it treats these cases as incomplete decentralisation. The methodology does not present one or the other dimension as superior or conditional for the other dimensions. But it presents different scenarios (trajectories) to reach the ultimate goal of a high level of discretion and accountability in all three dimensions. The decision on how and whether to reach this ultimate goal is a political one shaped by the local conditions and preferences in each country. Our methodology presents a menu of options and possible trajectories. It would be too prescriptive if it were to suggest a preference in these key and mostly political decisions. 7. The premise that the local political and institutional setting might substantially affect local performance and accountability is extensively theorised and documented in institutionalism-inspired studies of decentralisation (Lankina et al., 2007).
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between elected local authorities and local executives and administrators, the way councils are elected, the way executives are elected or appointed, and the structures for local legislative and executive bodies to relate to citizens (Lankina, 2008). The following sub-sections identify the key structural elements at the local level that define the setting for political action and set out some accompanying arrangements needed to improve the downward accountability relationships of local authorities with the citizens.
2.1 Factors defining the local political setting

An appropriate political setting for downward accountability requires a suitable environment for local elected leaders to act independently (even if it conflicts with their own parties or with the central government) and responsively (in line with the demands of the local population). The local leadership will be influenced by at least three sets of factors: (i) the institutional arrangements for separation of powers among the executive, legislative, and judicial bodies; (ii) the election laws and the electoral system; and (iii) the existence and functioning of a party system and political party laws. Institutional separation of powers at the local level Strongly influencing the quality of local decision-making are the checks and balances between the executive, legislative, and judicial branches of local government and the clear separation of powers among them. With roles and functions clearly identified, local councillors are expected to undertake independent oversight over local executive bodies, and local courts take the role of impartially resolving conflicts arising from local governments administrative actions. Accordingly, a key prerequisite for the separation of powers, at least in theory, is a specialised local court system able to resolve such conflicts. In many countries, this is done through administrative courts or alternative dispute-resolution mechanisms that mediate between local governments and citizens 9 about administrative actions, such as land use, zoning, and business regulations. Another important component of the institutional separation of powers is the relationship between the executive and the legislative. The relationship between and the relative weight of the local executive and the local council establish how local decisions
8. We make a distinction between the elected and executive bodies within local governments because they have distinct roles in local decision-making. Schroeder (2004) depicts local governments (elected and executive bodies) as the provision units rather than producers of services, meaning that they make decisions about the type, quantity, and quality of services to be made available in the locality, how those services are to be financed, and how produced. He ascribes the production of services to local public employees, private contractors, or higher jurisdictions under contract with the local government. In this sense, bureaucracy (and its supporting personnel) is the set of actors that either carry out the production of local services or help to oversee the private (or public) contractors that serve as production units (Schroeder 2004: 9). We use the term local appointed official interchangeably with local bureaucracy and emphasise the important role of local elected representatives in local accountability systems, especially in the oversight of local governments. 9. However, in less developed countries such formalised court systems usually do not extend to jurisdictions below a certain level of government or do not always respond to certain types of small-scale conflicts. Frequently, traditional and informal structures may also address cases resulting from local government actions, before a formal recourse to the judicial system.
Linking Local Government Discretion and Accountability in Decentralisation 265 are made. Different institutional mechanisms for assigning the weight to the respective bodies are possible: Strong mayor system. Under the mayor-council set-up, also called a strong mayor system, a popularly elected mayor wields strong executive, often charismatic, authority, deciding public policy and with a strong symbolic role in representing the city 10 (Sisk, 2001). This arrangement is detrimental to local accountability if local councils are marginalised and their role reduced to rubber-stamping the preferences of the local executive (Lankina, 2008). In Cte dIvoire and Uganda, for example, use of the strong mayor system has led to mayoral domination of local councils (Crook and Manor, 1998; Wunsch, 2001). Strong council. The second type of institutional arrangement is the election of a mayor by the council, usually from council members, giving the council more weight than the executive. This system is also referred to as parliamentary system. The risk of this type of local government is that debating chambers are not able to implement sound policy decisions (Lankina, 2008). Council-manager. The third type, frequent under many strong council systems, is the council-manager arrangement. The council appoints and contracts with a politically neutral administrator to run and manage the city. Such an arrangement can preclude 11 politically motivated patronage (Montjoy and Watson, 1995). Commissioner. Under a commission form of municipal government, elected commissioners also manage separate departments. They are both legislators and department chairs, all with equal powers though one may have the title of mayor. The system has been criticised for violating the principle of division of powers (Montjoy and Watson, 1995). Existence and quality of local electoral systems Electoral systems change the incentives of elected local leaders and voters, during and 12 between elections. An electoral system may favour big parties, undermine alternative
10. Various arrangements exist for governing the mayor-council relationship. For example, the mayor may have charter-based veto authority over council decisions, and procedures may exist for the council to override this veto. Or the mayor may lack veto power. Mayor-council set-ups might have an adverse effect on policy outcomes because political and administrative roles are not sharply distinguished under this arrangement. Empirical studies have shown how electoral turnover, particularly when a new mayor defeats an incumbent, results in proclivities for greater public expenditures and policy changes (Wolman et al., 1996). 11. It has been suggested that city managers are more likely to pursue policy innovations than elected mayors because they are ostensibly guided more by actual effectiveness and efficiency, rather than short-term electoral considerations and pressure-group demands, which would have been the case with elected political executives (Montjoy and Watson, 1995). City managers are not subject to frequent turnover and thus are more likely to ensure policy continuity and to have credible commitments to other actors in local development (Clingermayer and Feiock, 1997). 12. The concept of electoral systems is defined narrowly to refer only to the rules that determine the means by which votes are translated into seats in the process of electing politicians into office (Farrell, 2001: 15). Electoral laws is a broader concept that includes the laws regulating all facets of the election process, including nomination procedures, the characteristics of the franchise, and how campaigns are conducted (ibid.).
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voices and dissent, or encourage strict hierarchies within parties. More important, it can be structured in such a way as to systematically exclude certain groups. Or it may encourage political parties to simply win the votes of particular groups over others. In sum, the structure of local electoral systems has an impact on the quality of local representation and its responsiveness, and therefore the performance of decentralisation reforms (Hiskey, 2006). Scholars of decentralisation assert that fair, competitive and regular elections compel local politicians to exercise power in a way that allows decentralised institutions to provide efficient and fair outcomes (Echeverri-Gent, 1993; Crook and Manor, 1998; Blair, 2000; Faguet, 2008). But if an electoral system does not secure real competition among local politicians, decentralisation reforms might end up strengthening the hands of local political strongmen. Competition among local politicians increases the chances for vulnerable groups to be included in decision-making (Lankina, 2008). However, few scholars provide systematic insight into whether certain electoral arrangements produce better outcomes than others (Packel, 2008). A host of factors may shape the effectiveness of elections as an instrument of local citizens voice. Key among them: whether elections are based on individuals or party-nominated candidates; whether officials being elected are perceived to wield sufficient power; whether local elections are held concomitantly with national elections; and, of course, whether elections are manipulated (Sisk, 2001). In this context, the choice between proportional representation and election through single-member districts and plurality votes, also known as first-past-the-post, is a key institutional variation. In the emerging systems of democratic decentralisation in the developing world, there is more variation, ranging from pure PR systems, systems mixing PR with elections from single-member districts, first-past-the-post elections in single-member districts, to arrangements where the winning party takes all the council seats allocated through the election (Packel, 2008). In PR systems, voters generally vote for a political party rather than a specific candidate. Electoral districts contain multiple representatives, and the share of votes received by a party is translated by a fixed formula into the number of seats to be held by that party. So PR works to ensure that a partys degree of representation appropriately reflects its electoral support (ibid.). The alternative to PR systems is majority or plurality voting within single-member districts. Here, voters in a given electoral district vote for a specific candidate. With only one representative per electoral district, voters have greater clarity of representation they have no doubt who is directly charged with accounting for their interests. The chief drawback is that there is no guarantee that minority interests receive any representation (ibid.). This arrangement becomes a particular concern where minority interests are equally distributed across the polity. A party or group that has only a slight minority could easily lose elections in each electoral district, leaving it with no representation whatsoever (Farrell, 2001; Gallagher and Mitchell, 2005). There are very few systematic studies evaluating the relationship between varying institutional electoral arrangements and accountability in local governments (Packel,
13. Rules for candidacy may force party members to have closer ties with the centre rather than their local constituency.
Linking Local Government Discretion and Accountability in Decentralisation 267 2008). This is true for both advanced industrial democracies and developing countries. It is therefore very important to develop this research agenda further to better understand how the quality of local electoral systems reflects the local electorates preferences, the nature of local campaigning and the performance of elected leaders. Nature of party system and structures The rules and structures of local political representation create (positive or negative) incentives for local elected leaders to be downwardly accountable to all citizens. Political parties lie at the heart of this representation. They articulate and aggregate interests, provide channels for the recruitment of leadership, adjudicate disputes between conflicting interests, and engage in government decision-making. They provide the linkage between the ruler and the ruled, the policy-maker and the citizen (Lawson, 1980). Given the critical importance for local governance, it is essential to understand the features affecting the party system and structures, namely, the existence of partisan or non-partisan systems, the role of national parties in nominating local candidates, rules governing the financing of parties and the participation of disadvantaged groups such as women or certain minorities, and the availability of parties based on ethnicity or religion. Partisan or non-partisan. Although a growing literature is looking at the relationship between electoral competition and local government performance, a smaller literature focuses on partisan systems compared with non-partisan ones (Packel, 2008). Advocates of non-partisanship in local elections maintain that local government pertains to bread and butter issues, on which there can be no division along party lines (Olowu, 2003). According to this understanding, the inclusion of parties at the local level risks allowing policy-making to become contaminated by patronage and clientelism instead of focusing on long-term benefits (Packel, 2008). The literature argues that elected officials may be focused on securing re-election or delivering benefits to their narrow client base, rather than delivering policies that benefit the entire community in the long run (Lankina, 2008). In addition, officials may be more concerned with taking measures to ensure their promotion and advancement within the internal party structure, rather than in promoting policies that benefit the community (Ahmad et al., 2005). In Ghana, for example, parties have been outlawed in local elections, based on an argument that merit, not party affiliation, is the basis of representation (Crook, 1999; Francis and James, 2003). Indias panchayats also operate on a non-partisan basis by law (Venugopal and Yilmaz, 2009). Allowing parties to participate in local government, by contrast, acknowledges the link between local and national government. Examples of systems allowing partisanship in local elections are nearly all from the recently decentralising Latin American countries, including Bolivia and Mexico. In Africa, prominent examples of party-based systems are Cte dIvoire, Kenya, Nigeria, Senegal and South Africa (Packel, 2008). Role of national parties in nominating local candidates. The membership and loyalty structure of the parties, the role of national party leaders in selecting candidates and preparing party lists for local elections, and the hierarchy structure within parties can also shape the behaviours of political parties. These factors can have direct or indirect effects on the ability of local political leaders to exercise their powers and may
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create an environment where national priorities and national party leaders dominate local priorities and agendas. In many countries, parties do not command stable loyalties, with elections focusing on elites or personalities (Azfar et al., 2001). A review of relevant case studies shows that national parties play a role in nominations (Packel, 2008), which may affect party loyalties. Where local elections occur on a partisan basis, nomination rules that favour national parties can serve as impediments to downward accountability. This is the case in Senegal, where only nationally registered parties can field candidates for local elections. In a study comparing six Latin American countries that have taken formal measures to decentralise forest management, Larson (2003) notes with concern that in Bolivia, Brazil, Costa Rica, Honduras and Nicaragua, local candidates are selected by national parties. These arrangements are also likely to diminish the capacity of local actors to demand accountability from local elected officials, because their choices for selecting representatives are likely to be limited (Packel, 2008). Financing of parties. Local party financing is also critical in analysing local governance structures. Corrupt practices related to covert party funding streams, influence peddling, and leveraging state resources for party purposes may compromise the faith of ordinary citizens in the political processes. A recent study by the National Democratic Institute of 22 countries highlights many areas of concern, such as the role of wealthy business interests in funding campaigns to gain access to lucrative state contracts (Bryan and Baer, 2005). This is still an area with a scant literature. In many developing countries, accurate information about party funding sources and political spending practices is not available to the public. Participation of disadvantaged groups. Without clear rules stipulating the inclusion of certain disadvantaged or minority segments of society, a party system may easily engender a system of dominance by majority and more powerful social groups. Exclusion from the party system based on race, gender, ethnicity, or religion reflects a party agenda (and inevitably, a local council and government agenda) favouring the majority and the more powerful. In the absence of sanctions against such exclusion, downward accountability of locally elected leaders is damaged, leading to skewed policy-making and greater rent-seeking. All the elements discussed in this section define the local political setting in which local elected officials interact with the other actors within the government and with the citizens. There is no one-size-fits-all setting that these elements would produce; many different combinations could be determined, depending on the country context and preferences of the local leaders. No matter what combination is chosen, however, the goal is to provide a setting conducive to downward accountability. The following section discusses the key aspects that need to be taken into account.
2.2 Making local politics downwardly accountable

Political accountability is a process whereby citizens hold elected officials to account for their behaviour and performance say, through elections (Aucoin and Heintzman, 2000). Political accountability can also be improved by having elected local officials oversee local executives, or by involving citizens directly in decision-making beyond elections.
Linking Local Government Discretion and Accountability in Decentralisation 269 Strengthening the political dimension of local accountability requires some safeguards on the supply side regarding local electoral systems and local council oversight (public accountability). On the demand side, political accountability measures allow for citizen-initiated legislation (petitions), referenda, or recalls of elected public officials, including procedures for petitions to adopt, amend, or repeal an act, law, or executive order, to demand public hearings on policy decisions and action and to appeal to ombudsman offices in local governments (social accountability). Public accountability approaches Introducing safeguards into the electoral system. Despite many weaknesses, elections remain the principal method whereby all eligible local residents can have a voice in the outcome and can hold decision-makers accountable (Schroeder, 2004: 9). They legitimise local authority and provide elected representatives with a mandate for action. But little attention has been devoted to how specific electoral mechanisms fare in delivering accountability, or even whether voters use elections to hold officials accountable for certain policy decisions (Rodden, 2004). Nevertheless, the general literature on elections does show that differing electoral arrangements shape how citizens exercise influence on policy-makers (Powell, 2000). An established body of literature on Western local governance suggests that, even under perfect conditions, a voice in local elections fails to ensure that elected officials 14 will exercise power on behalf of all segments of the community. These studies suggest structural biases against marginalised and non-elite groups built into elections even in Western democracies. Hunter (1953) shows how power in US cities is concentrated in, and exercised on behalf of, a narrow group of elite interests. Studies on the involvement of underprivileged segments in decision-making processes demonstrate that they rubber-stamp decisions already reached by other interests (Schattschneider, 1960; Bachrach and Baratz, 1962). And other studies reveal a middle-class, white-collar, male bias in the composition of elected bodies (Balme, 1989; Newton, 1976; Mabileau, 1989; Mabileau et al., 1989; Stone, 1989). Some countries allow independent candidates to run in local elections, reserve seats for women and other vulnerable groups, allow for recalls of elected officials and limit the length of the term they may remain in office. These mechanisms are important in countries where money, violence, and corruption dominate elections, and politics are based on kin, personality, or patronage (Olowu et al., 2004: 71). The impact of such measures is complex. For example, re-election procedures could determine political accountability, although two opposing relationships are possible (Packel, 2008). Term limits could foster accountability by preventing local politicians from becoming entrenched in their positions and locked into relationships of patronage. Representatives who were recently private citizens would thus be more
14. As a result of a decline in faith in representative democracy, turnouts in local elections have gradually declined over the past few decades in many countries. Elections focused on parties have likewise alienated voters, as parties are often perceived to have lost touch with the electorate. In some countries, like Canada, parties are now banned from participating in local elections; it is assumed that party-free elections ensure that elected officials speak on behalf of the community and do not espouse narrow party agendas (Sisk, 2001).
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attuned to the concerns and interests of the community than career politicians (Packel, 2008). But if term limits are too restrictive, council members may not be able to master the responsibilities of their position before their terms expire. The theory of retrospective control of politicians asserts that, given perfect information, voters use elections to reward or punish politicians. But without the possibility of re-election, elections lose their power of control, and politicians may engage in more rent-seeking (Maravall, 2007). Even with imperfect information, eliminating the possibility of re-election may at the very least reduce opportunities for accountability (Packel, 2008). Mexico is one country that imposes term limits of three years on local elected officials and bars them from holding the same position again for one term. Researchers argue that these limits impede performance (Cleary, 2007; Grindle, 2006). Recall gives councils or popular bodies the ability to dismiss elected leaders for wrongdoing. Unlike elections, however, the decision is confined more to evaluations of past actions. In Africa, recall provisions exist in Ethiopia and Nigeria (Olowu, 2003). Indias panchayati raj law varies across different States, but some of the most progressive legislation for recall exists in Madhya Pradesh, with detailed regulations for gram panchayat action (Mathew and Mathew, 2003) and where the gram sabha (village assembly open to all adult residents) has the right to dismiss the panchayat chairperson in the event of wrongdoing (Johnson et al., 2005). If a provision for recall exists, its design matters if it is to be an instrument of accountability. Recall alone may not engender downward accountability if the only actors capable of exercising this power are beholden to national political parties (Packel, 2008). In Bolivia, the widespread use of the law allowing the town council to recall mayors in cases of misconduct, known as the voto constructivo de censura (constructive censorship vote), illustrates this risk. In 1997, one year after the first mayors entered office following implementation of decentralising reforms, 30% of them were replaced, indicating that the voto constructivo was being used as a political manoeuvre, not a response to corruption (Hiskey and Seligson, 2003). Indeed, this high use demonstrated that the recall hindered accountability, as mayors wound up being selected by council members rather than by the electorate, and with less citizen support for the political system than in municipalities where the recall was not exercised (ibid.). Improving local council oversight. Local councils are the core units of representative governments. Improving local council oversight therefore constitutes an important part of public accountability approaches, relying as it does on the assumption that local elected representatives have more incentive to respond to the needs and preferences of local populations and are more downwardly accountable than local bureaucrats. The relationship between elected local councillors and executives also pertains to budget planning, execution, and monitoring and evaluation. Local councillors are supposed to oversee the executive branch during the entire process of public financial management and provide local executives with constant feedback. A number of factors interfere with the oversight responsibility of local councillors. First, there is the status of local councillors (Lankina, 2008). Although executive positions are generally considered to be full-time, in many settings councillors are low paid and part-time, their council duties motivated by civic spirit and volunteerism (Pelissero and Krebs, 1997). Second, there is the lack of safeguards against dual
Linking Local Government Discretion and Accountability in Decentralisation 271 structures of accountability (Lankina, 2008). In some developing countries, councillors often occupy dual roles as full-time executive functionaries dependent on, and accountable to, higher-up bureaucracies and elected local officials. In some parts of Russia, local councils are packed with senior professional employees of medical and educational institutions (Lankina, 2004). Such councillors are less likely to aggregate 15 and articulate the preferences of the citizens who elected them. Other countries demonstrate similar conflicts of interest. In Ghana, a third of local councillors are formally appointed by state bodies, while in Kenya as well as Ghana, members of parliament can be ex officio members of local councils (Olowu et al., 2004). In India, some states have power to remove elected representatives or even dissolve panchayats (Mathew and Mathew, 2003). In many countries, councillor positions also overlap with key patrimonial, social, or other structures in the locality, impeding accountability. Social accountability approaches Social accountability mechanisms can give poor and marginalised people a more direct voice in the policies that local governments formulate and implement than through elections and local councils. Studies of African countries where elections are in place show that local citizens fail to sanction poorly performing officials effectively (Azfar et al., 2001). Patronage, clientelism, elite capture and elite biases are still widespread. Social accountability mechanisms are often part of broader efforts to deepen democracy and ensure a robust public sphere for citizens to give feedback and control government 16 action. The practical form of such participatory arrangements includes public meetings, citizen juries, forums for various social groups, such as the young or the elderly, neighbourhood assemblies, multi-choice referenda accompanied by active public debate and discussion, and activism by non-governmental organisations and other community groups. In some settings citizens are excused from work and asked to meet to make recommendations about local issues, thus drawing even the normally passive and 17 uninterested citizens into public life (Lankina, 2008). Logistically, some of these deliberative forums could be complicated and time-consuming, but observers point to their merits, namely, that consensus-based decision-making may be more legitimate than that of elected officials which cannot be realistically scrutinised on a daily basis (Sisk, 2001).
15. In some instances, public employees, such as school principals, appointed by higher-level bureaucracies on a contract basis, sit in local councils. They tend to satisfy the political preferences of regional authorities because their jobs are subject to short-term contracts, which could be revoked. Even heads of private enterprises are subject to control and manipulation by higher authorities because their tax privileges and licences could be withdrawn at random (Lankina, 2004). 16. These efforts represent a new approach to democratic governance that some scholars have called Empowered Participatory Governance (Fung, 2004). It looks at how alternative political and administrative designs can surpass conventional democratic institutional forms on the quite practical aims of enhancing the responsiveness and effectiveness of the state while making it more fair, participatory, deliberative, and accountable (Fung and Wright, 2001: 8). 17. The size of the locality and its cohesiveness are important factors determining the effectiveness of such forums (Sisk, 2001).
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These powers to hold political leaders accountable may be expanded: (i) by generic legislation empowering citizens to demand explanations and justifications from local governments; (ii) by setting up specific bodies and processes for citizen oversight; and (iii) by creating a political culture for citizen oversight. Generic legislation. Some initiatives introduce legal mechanisms empowering citizens to redress grievances or request explanations of municipal legislation. Public hearings and consultations, the right to demand a public hearing, public petitions, and the right to initiate a recall or referendum are examples. Specific bodies and processes. These can comprise all citizens in the municipality (gram sabha in India), several citizen representatives (Vigilance Committee in Bolivia), or an elected position (citizen ombudsman in Japan). In some countries local development programmes transfer discretionary resources to local governments on condition that they create multi-stakeholder forums, with representation from civil 18 society, local councillors, and deconcentrated offices. In the Philippines, for example, the Local Government Code mandates all provincial, municipal, and village governments to establish local development councils to set the direction for economic and social development and review local government budgets, one-quarter of the members to come from non-governmental and community-based organisations (Estrella and Iszatt, 2004). Creating a political culture. By introducing mechanisms for poor and marginalised people to participate in decision-making and for local transparency and accountability, community-driven development programmes have promoted a culture of citizen 19 oversight. A community-based programme that empowers citizens to be informed and have a say over local public expenditure creates the expectation that all programmes should follow the same standards.
Local administrative discretion and accountability
To have flexibility in delivering services and the opportunity to respond to local needs, local governments need administrative autonomy. We identify three broad areas of authority as being crucial for local governments to be administratively autonomous: power to make, change and enforce regulatory decisions/laws; to govern a procurement system (based on national standards); and to make civil service/employment decisions.
18. Although these forums provide a venue for greater co-ordination and control, they need to be properly designed to complement the role of the local council. 19. A community-driven development approach tries to improve the well-being of poor people by increasing their control over the way investment resources are planned, executed and managed. Because communities do not act in isolation but in a local space where they interact with local governments, sectoral service delivery units, the private sector, and civil-society organisations, the community-driven approach has recently been expanded into a broader local governance approach that captures the quality of these local interactions (Helling et al., 2005; McLean et al., 2006).
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3.1 Factors affecting local administrative discretion

Ability to regulate As part of administrative autonomy, local governments need a minimum set of powers and capacities to initiate, amend and enforce regulatory legislation on issues within their jurisdiction, subject to national and state laws. Their powers usually extend to local economic development, land-use planning and management, zoning, and public safety and in certain cases, some aspects of public health, social protection, education, and environmental protection. These enhance their discretionary authority to make decisions and take actions concerning who can benefit from given resources or opportunities, how, and to what extent (Agrawal and Ribot, 1999: 480). For example, research on environmental regulatory networks for shrimp farming in Thailand shows that local governments are the most effective regulators (Vandergeest, 2007). They also need the power to sanction and punish non-compliance, one such tool being the administrative penalty, usually a monetary fine or the revocation of licences or rights related to, say, an economic activity or land use. Although the power to sanction requires a qualified workforce to monitor non-compliance, endowing local governments with such power could prove more practical and cost-effective than 20 prosecution through litigation. Discretion to procure and administer services Expanded mandates and responsibilities for new services require local governments to 21 be given discretion over procurement processes for goods and services, which in turn requires flexibility in procurement laws and regulations and high-quality employees well trained in public procurement, ethics, and contract management (Brennan and Miller, n. d.). Such discretion implies that, under strictly stipulated national standards 22 and regulations, local governments can develop procurement strategies, identify 23 associated processes, and issue contracts for goods and services. Discretion over civil service and employment policies In many countries political and fiscal devolution may have proceeded apace, but administrative changes may only approximate deconcentration, the result being
20. Administrative penalties do not replace criminal prosecution, and the legal system is important for local administrative autonomy. Enforcing local administrative rulings is effective and legitimate only when there is recourse to challenging local government decisions. As discussed in Section 2, the existence of a specialised administrative court system for local affairs would be instrumental in establishing checks and balances between local executive and legislative bodies. 21. Private-sector participation in service delivery through service and management contracts, leasing, concessions and joint ventures alleviates pressures on budgets. It also brings in skills and knowledge, improves the efficiency of service delivery and insulates operations from political interventions. 22. A procurement strategy should stipulate mechanisms for assuring compliance with the competitive bidding and against abuses, such as bid splitting, change of orders, and restrictive bid specifications. 23. A local government procurement policy is closely associated with the quality of service administration and the way contracts are awarded to partnerships in service delivery, including for firms of various sizes, social enterprises, minority groups businesses, and voluntary and community organisation suppliers.
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weakened accountability for service delivery, and conflicts of interest (Ahmad et al., 2005: 10). Civil servants form a crucial link in moving government closer to people; therefore civil service management or more broadly human resource management should be seen as an essential component in the design of decentralisation rather than a separate, stand-alone process (Green, 2005: 129). Local government competency and discretion over civil service and employment policies ideally cover autonomy and transparency in pay policy (overall wage rates as well as allowances), control of budget and establishment, autonomy in recruitment, 24 control of career management, and performance management (Evans, 2004: 24). The degree of autonomy differs across countries; Table 1 provides a general picture of the situation in East Asia. Each of these factors increases a local governments administrative autonomy and influences its accountability relationship with local bureaucracies. However, many countries suffer from misaligned structures of accountability in decentralisation (Lankina, 2008). In Pakistan, for example, despite devolution of responsibility for education to school districts, teachers remained provincial government employees, with the elected district executive, nazim, having little authority over them (Ahmad et al., 2005). Similarly in Uganda, despite devolution in health care, key decisions and drug provision remain the prerogative of the centre, but salaries and staffing are that of the District, undermining local incentives for efficiency and responsiveness (Azfar et al., 2001). Granting administrative autonomy to local governments in civil service management results in reallocating powers and jobs, geographically and institutionally. Issues related to status, prestige and labour mobility often impede relocation or dislocation of civil servants across tiers of government. Bureaucracies tend to resist decentralisation reforms because of career perspectives and institutional and political allegiances. Such resistance can lead to field officers maintaining strong links with their original line ministries, thereby enjoying some insulation against local control. This is often the case in countries where central government officials were simply transferred to local governments after decentralisation reforms were instituted. The result is that staff burdens are transferred to local governments, without the discretionary powers over the civil service. In India, for instance, though most State legislation has clarified the functions to be devolved, the States have frequently been unable to transfer administrative and technical and technical controls over locally administered programmes. In China, on the other hand, although subnational employees make up 90% of total government employment, the central government retains a significant degree of control over numbers and wage levels, structure and career and performance management of the subnational civil service (Green, 2005). Both in China and the Philippines, the double subordination of local government staff to the local executive and the relevant central agency weakens the downward accountability of local civil servants (ibid.).
24. Some form of accountability to higher levels of authority may be unavoidable for local authorities performing state-delegated or -funded tasks. It is, however, important that there be no confusion about responsibilities or distorted incentive structures whereby the local authorities are deprived of leverage over service providers within their jurisdictions.
Table 1: Staffing authority among subnational governments in East Asia

Philippines Cambodia Indonesia Enabling mechanisms Thailand Vietnam
Budget control Determine wage Dismiss surplus staff Establishment control Control overall staffing numbers in individual offices and facilities Recruitment Formal employer Have authority to hire Have independent merit-based recruitment mechanism Career management Promotion available Internal transfers possible Horizontal mobility Performance management Direct and supervise Conduct evaluations Offer financial rewards Discipline and fire Pay policy Set overall wage rates Set local incentives/ top-ups
China
Note: = yes; = partial; = no. Ratings refer to the subnational level and de facto practices as well as de jure authority. Data are for most recent available year, ranging from 2000 to 2003. Source: Green (2005).
3.2 Making local administration downwardly accountable

Accountability for the exercise of administrative powers requires avenues for complaints and redress, accessible to officials and others. Oversight of the use of civil service control includes measures to improve budget transparency on staff payments, on policies and practices for new appointments, and on practices for budget and
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establishment control. Similar measures are needed to ensure transparency and openness of the procurement process to avoid misconduct and corruption. These measures call for appropriate channels for administrative audits that can be initiated by bureaucrats or elected leaders and by civil-society groups. Public accountability approaches Public accountability in the administrative sphere refers to local civil servants being accountable to their top administrative officers and to outside officials or entities such as public audit officers, ombudsmen, regulators, a particular administrative agency, or a board or committee. Three major mechanisms that public sector approaches rely on to improve this accountability are structures within bureaucratic hierarchies, specially designed independent bodies, and administrative courts. Accountability structures in the bureaucratic hierarchy enable higher authorities to instigate investigations or audits of the use of administrative discretion by lower bureaucrats, and are important as a first step to uncover information about misadministration by local governments. Issues arising due to lack of sound control and audit systems range from collusive practices in procurement in Indonesia (World Bank, 2003) to a lack of compliance with procurement laws in the Philippines (World Bank, 2004b). Specially designed independent bodies authorised to conduct administrative audits on local governments have emerged in response to increased complexities requiring specific expertise, and have become a widespread accountability measure. Examples include independent/external auditors who scrutinise the use of public funds, 25 ombudsmen who hear citizens complaints about regulations, decisions and actions, and theme-specific bodies (such as the anti-corruption commissions, environmental review boards, or commissions for sustainable development) that analyse whether local 26 administrative decisions are in line with national sectoral strategies. Administrative courts with local expertise address local conflicts arising from local governments regulatory and administrative decisions, and can ensure compliance with national laws and regulations. Such a court system issues binding decisions and may resolve cases that the local governments and associated independent bodies fail to address. In France, for example, les tribunaux administratifs are the court of first instance with full jurisdiction over disputes related to local government actions.
25. The office of the Ombudsman in the Indian State of Kerala is a 7-member body consisting of a High Court judge as the chairperson, other judges and non-political representatives appointed after consultation with opposition parties. In addition, there are appellate tribunals as a source of appeal against panchayat decisions. Only impeachment could remove members of these bodies, which minimises the chance of executive interference with their work (Mathew and Mathew, 2003). 26. Legislatures set up these agencies to make inquiries, obtain information, and issue (limited) regulations or judgments (Zarei, 2000). In some African countries, like Ghana and Uganda, there are local judicial or conflict-resolving agencies, run by volunteers, which may be customary, providing sound redress for local grievances (Olowu et al., 2004).
Linking Local Government Discretion and Accountability in Decentralisation 277 Social accountability approaches Public accountability approaches are necessary to provide channels for uncovering basic information on regulatory decisions and civil service practices and services. But public approaches alone fall short of ensuring proper use of administrative discretion. Citizenbased efforts concentrate on producing the information that is most relevant for local citizens welfare monitoring the quality of services and the way contracts and tenders are given at the local level. Recent approaches emphasise the need for citizens to initiate administrative audits to reveal more information on employment and pay policies as well as relationships between local governments and service providers. Information provision as a basis for citizen monitoring. Lack of information on financial allocations often leads to the abuse of funds; making information available to the public is thus the starting point for many social accountability initiatives. In India, social audit committees, comprising individuals with impeccable reputations, scrutinise local decision-making and publicise findings on how public money is allocated and spent (Mathew and Mathew, 2003). In the State of Rajasthan, public hearings with wide publicity and social mobilisation forced public officials to return public money they had misallocated (ibid.). Monitoring procurement and implementation. The contracting and implementation of public works and services suffer from a high risk of corruption and mismanagement. Citizen-based initiatives complement government accountability mechanisms that manage these risks supervising contracting and bidding, monitoring construction, and auditing budget execution. A typical source of corruption and collusion involves drafting tender documents in ways that unfairly benefit one contractor over others. Citizens have organised public consultations in which different parties get a chance to comment on draft tender documents, and independent outsiders conduct an in-depth analysis before the start of bidding. In the Philippines, the Local Government Code defines ways in which accredited non-governmental and community-based organisations can have a seat on the prequalification, bid, and award committee for local contracts. In Argentina, the Municipality of Morn, assisted by the local chapter of Transparency International, introduced two mechanisms to monitor the contracting of the waste collection service, which had been widely criticised for alleged corruption. At an extraordinary session of the city council, attended by 500 people, the value of the contract was reduced from about $45 million to $32 million. Citizens have also been involved in overseeing the opening and analysis of bidding offers, as with the Social Investment Fund in Nicaragua (Grun, 2000). They can also oversee construction while it is taking place, and are trained to see that funds are spent as allocated and that the construction follows the standards agreed to in the contract. Monitoring local service provision. The level and quality of service provision are probably what citizens care about most. Participatory assessments and feedback surveys are often accompanied by agreements on the standards of services expected. One of the main innovations that drew attention to the potential of the social accountability approach was the citizen report cards in Bangalore, India (Paul, 2002). The cards are participatory surveys that solicit user feedback on the performance of public services. They are used in situations where there are no demand-side data, such
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as user perceptions of the quality and satisfaction with public services, and they gather demand-side data about state-owned monopolies, many of which lack incentives to be responsive. The report-card process relies on extensive media coverage and civil-society advocacy to achieve greater accountability in other Indian States, Ghana, Malaysia, Senegal and Uganda. In Uganda, a recent report-card project, aimed at reinforcing health providers accountability to citizen-clients by enhancing communities ability to monitor providers, increased the quality and quantity of primary health-care provision (Bjorkman and Svensson, 2007). Another example of social scrutiny of local governments is social funds 27 committees, user groups that ensure that services are delivered as intended. A complement is the citizen charter, a pact between the community and service providers that spells out expectations and roles, enabling citizens to interact more effectively with the local authority. An example is the Citizens Charter of the Municipality of Mumbai, India, which covers detailed public services for each municipal department. Other strategies have relied on the creation of new multi-stakeholder institutions to promote citizen oversight over a specific local government service. Examples include the local school councils in Chicago in the United States (Fung, 2004) and citizen community boards and school management committees in Pakistan (ADB/DFID/World Bank, 2004). Citizen monitoring of administrative decisions should be seen as a complement and not a substitute for public accountability mechanisms. Citizen-based actions may in fact fail to provide effective oversight. Local citizens often lack the knowledge to assess adequately the quality of complex services, which results in market imperfections in the sense that they cannot properly hold local policy-makers accountable (Lankina, 2008). What voters can assess is often wasteful, but highly visible, projects, whose implementation also rewards narrow clients, not the broader citizenry (Ahmad et al., 2005). This was the case in the Czech Republic, where one badly performing municipality decided on a very costly but also highly visible bridge across the river running through the city (Lankina et al., 2007). Similar caution is needed to judge the quality of participation in community activities to monitor local government service delivery. Even if participatory mechanisms are in place, which might boost a given localitys overall economic development, the levels of participation within the community are likely to be lower among those less economically advantaged and the benefits of the new participatory arrangements biased toward those who are better-off (Lankina, 2008). A study in Uganda found that education and income were determinants of membership in such key local government committees as health and school management (Azfar et al., 2001).
27. The empirical record of these mechanisms is mixed, and there is no systematic evaluation of their effectiveness (Olowu et al., 2004).
Fiscal discretion and accountability28
Local government performance is intrinsically linked to the scope and nature of intergovernmental fiscal arrangements. If local governments are denied the fiscal instruments and funding to make real use of their political and administrative autonomy, 29 decentralisation is doomed. Intergovernmental fiscal rules determine the expenditure responsibilities and revenue resources of local governments as well as the design of the transfers system and local governments access to capital markets (Bird, 2000).
4.1 Determinants of local fiscal discretion

Expenditure assignment Devolving expenditure responsibilities to local governments is an important step in 30 increasing the participation of citizens in local decision-making. A genuine spirit of decentralisation requires assigning a meaningful level of expenditure responsibilities to local governments with service autonomy so that they can respond to local needs. More importantly, they need the discretion to make their own allocation decisions (with the necessary reporting, monitoring and sanctioning). In this devolving of responsibilities there should be no room for ambiguity. Clear assignment of roles and responsibilities is decisive in shaping accountability relationships. If the contest over service-delivery responsibilities is not resolved, it can easily constrain local autonomy and reduce the local governments credibility and responsiveness. A related issue is unfunded mandates imposed from above. These reduce local budgetary autonomy, as was the case in East European countries as they embarked on decentralisation in the early 1990s (Bird et al., 1995). A clear assignment of service responsibilities requires a well-defined institutional framework that describes the roles and responsibilities of different levels of government. Lack of this is a common problem in East Asia. In Indonesia, for example, although the decentralisation law of 1999 gave all authorities to local governments, since authorities are broader than functions there is confusion about who is responsible for what, from legislation to planning to implementation (Mountfield and Wong, 2005: 95). Clear assignment of expenditure responsibilities becomes even more important in sectors where line ministries and other government agencies may also deliver services at the local level often in the same geographic area. This situation often exists for education, health, and social services in many developing countries. In China and Vietnam, for example, the administrative system
28. There is a robust literature on the theoretical and implementation aspects of fiscal decentralisation the intergovernmental framework (IGF). On the other hand, the interaction between IGF and the political and administrative dimensions as well as fiscal discretion and accountability are inadequately studied. Thus, this section does not provide an extensive review of IGF issues, but focuses on the linkage between IGF and discretion and accountability. 29. Fiscal decentralisation requires public services with high local-public-good characteristics to be assigned to local governments and the rearrangement of roles and responsibilities among different levels of government. 30. In countries where decentralisation does not end up transferring such responsibilities to local governments, central government departments and public-sector companies continue to deliver most services with high local characteristics, such as primary education, health, and public security.
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operates as nested hierarchies, and this creates ambiguity about the distribution of functions in a multi-tiered setting (Mountfield and Wong, 2005). Revenue assignment Oatess decentralisation theorem (1972) states that local governments should provide services to identifiable recipients up to the point where the value placed on the last (marginal) amount of services for which recipients are willing to pay is equal to the benefits they receive. The implication is that local governments must be given the authority to exercise own-source taxation to self-finance local services at the margin, on the premise that local governments are more accountable when relying on their own tax bases (Faguet, 2008), and would be less accountable when the pleasure of expenditure benefits is separated from the pain of taxation (Bahl and Schroeder, 1983). Significant revenue autonomy and some tax-effort incentives are critical to encourage downward accountability and increase the efficiency of local government 31 operations. Although there is no set of prescribed rules in revenue assignment, subnational governments should at least have rate-setting authority over locally assigned revenues (Bahl, 1999a). A completely local tax is one that is assessed and collected by local governments at rates decided by and with proceeds accruing to local governments (Bird, 2000; Bird and Vaillancourt, 1998). In many countries, the central government interferes with local revenue autonomy, putting direct or indirect restrictions on local governments discretionary space. In Uganda, local governments may impose additional taxes, but only with the approval of the Ministry of Local Government; however, there are no standards established for approval or rejection (Azfar et al., 2001). Restrictions on revenue generation are similar in the Philippines; the Local Government Code constrains local revenue collection through rules on rates, assessments, appeals, and administrative responsibilities (USAID, 1999). The accountability implication of each constraint is that they might create incentives to make inefficient investment decisions, especially if costs can be shifted to central budgets (Campos and Hellman, 2005: 242). Financing the fiscal gap The design of intergovernmental transfer systems has implications for accountability because it affects the fiscal dependence on central government and local revenue-raising ability. Four elements determine this dependence (Yilmaz and Bindebir, 2003): the rules determining the total amount of transfer the distributable pool; the way the pool is allocated among local governments; the purpose of the transfer system an unconditional general purpose grant versus a conditional specific transfer; and the design and management of the system. A high degree of dependence on transfer revenues and a poorly designed system shift the focus of local government accountability away from citizens to central
31. In some cases, local governments do not seek revenue-raising discretion to avoid accountability. In other cases, they do not collect taxes assigned to them. In China, for example, local governments have taken back door approaches, for example, contracts with enterprises, tax holidays, tax administration, and trades for investment in public services (Bahl, 1999b: 79).
Linking Local Government Discretion and Accountability in Decentralisation 281 governments. In other words, they create an imbalance between downward and upward accountability incentives at the local level, negatively affecting local government discretion and the incentive to respond to citizen demands. In Nigeria, for example, local governments over-dependence on intergovernmental transfer revenues, coupled with uncertainty about the amount and timing, facilitates local evasion of responsibility under the guise of fiscal powerlessness (Khemani, 2006: 22), while in Uganda, where transfers, as earmarked conditional grants, finance more than 80% of local government expenditures, a substantial degree of line ministry control over local expenditure 32 decisions is maintained. Financing infrastructure: local government borrowing Local borrowing is the fourth pillar of the intergovernmental fiscal system. Access to capital markets gives local governments an opportunity to finance local investment needs. However, heavy reliance on borrowing has put macroeconomic stabilisation at risk. In the late 1990s, in Argentina, for example, perversely structured intergovernmental systems destabilised the economy. In countries where central government cannot credibly commit to a hard budget constraint, there are irresistible incentives for local governments to exploit borrowing and extend their budgets beyond their means (Faguet, 2008). In Brazil and Argentina, for example, imprudent subnational fiscal practices and a softening of local governments budget constraint led to major macroeconomic crises (Dillinger and Webb, 2004). Many central governments therefore limit, control, or even prohibit the issuance of debt by local governments. In fact, in a number of developing countries, 33 some of them with efficient markets, local government borrowing is constrained. In countries where the intergovernmental system falls short of responding to local investment needs and local governments have limited ability to raise additional revenue through their own sources, strong restrictions on borrowing may actually limit local discretion in addressing investment needs. Suffice it to say that central governments 34 approach to local borrowing has important accountability implications.
4.2 Making local finances downwardly accountable

Fiscal decentralisation depends on the ability of local governments to manage revenues and expenditures effectively and requires strong institutions for financial accountability.
32. To the extent that transfers are conditional, local governments are dependent on the transferring authority. Depending on their purpose, conditional transfers can have specific spending objectives and give local governments limited autonomy to meet local preferences. Further, if local governments do not have any own-source revenues and all the central government transfers are conditional, significant restrictions to their discretion can be expected and use of these funds may reflect the priorities of central government rather than local citizens. 33. In inefficient markets, moral hazard the presumption by capital markets that central government will bail out local governments in case of bankruptcy is a major concern for central governments. 34. There are four approaches to limit local borrowing: market discipline, co-operative arrangements between local and central governments, rule-based controls, and administrative constraints (Ter-Minassian and Craig, 1997).
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Weak or absent local public financial management systems35 are likely to negate any advantages that might be inherent in bringing public services closer to local communities (Ahmad et al., 2006: 405). Without sound management systems, financial accountability cannot be ensured, because local governments are vulnerable to waste, corruption and inefficiencies (Baltaci and Yilmaz, 2006). Financial accountability seeks transparency in the management of public funds. It also requires that governments manage finances prudently and ensure integrity in their financial reporting, control, budgeting and performance systems (Sahgal and Chakrapani, 2000). Public accountability approaches Public-sector measures to improve accountability focus on effective, efficient, 36 transparent and rules-based public financial management. They include strengthening local capacity for budgeting and public financial management, setting standards for control of intergovernmental transfer revenues, publishing transfer figures, making audit findings publicly available, observing clear rules for responsible local borrowing, providing public access to borrowing information, and setting clearly defined rules for hard budget constraints on local governments. Evidence so far indicates that there are significant shortcomings in preventing the misuse of public resources, resulting in fraud and corruption, among others (see Table 2 for the situation in selected countries).
Table 2: Local governments and internal controls in selected countries

Country Argentina Internal control system at the local level Lack of legal instruments & no political willingness to improve internal controls & audit systems Lack of contemporary internal controls & audit systems Issues arising from a lack of internal controls High level of indebtedness in local government & failure to provide urban services Impaired safeguarding measures; abuse, misuse, fraud, & irregularities; widespread corruption; misconduct & misuse of public funds; & public disaffection with government institutions Common problems in compliance with laws & regulations; unlawful tax practices
Bosnia
China
Ex-ante expenditure control & compliance audits
35. The term public financial management refers to all parts of the budgeting process and both upstream (preparation and programming) and downstream (execution, accounting, control, reporting, and monitoring and evaluation) phases. 36. The Public Expenditure and Financial Accountability (PEFA) Initiative summarises the core dimensions of good public financial management that promotes transparency and accountability in each step of the cycle (PEFA, 2005). These include budget credibility, comprehensiveness and transparency, policy-based budgeting, predictability and control in budget execution, accounting, recording, and reporting, and external scrutiny and audit.
Table 2: Contd
Country Colombia India Karnataka State Internal control system at the local level Unclear legal framework; ineffective internal control mechanisms Inefficient controls & audit practices, old-fashioned rule books, lack of timely & reliable information; focus on compliance audits & inadequate follow-up & audit findings Issues arising from a lack of internal controls Negligence, corruption, & misuse of public funds Frequent cases of abuse, misuse, & fraud; irregularities & malpractices in procurement; lack of coherence to the stated rules & procedures
Indonesia
Weak internal control & audit systems Unethical & uneconomic operations due to pervasive corruption, inefficient cash management; & collusive practices in procurement Weak internal control environment, non-existent internal audits, & lack of timely financial information Lack of compliance with laws, rules & regulations; fraud & irregularities; & overpaid public purchase & procurement
Philippines
Source: Baltaci and Yilmaz (2006).
Social accountability approaches Until recently, financial management processes were seen as purely technical matters and, for that reason, were dominated by the executive branch of national and local governments. Legislators, civil society and the general public often lacked the capacity to scrutinise them, particularly at local levels. In the last two decades, civil-society organisations have acquired the skills and confidence to intervene in decision-making 37 processes. The most common social accountability mechanisms include making local government financial information accessible to the public (including budgets and endof-year financial statements); allowing public involvement in the budgetary process through participatory budgeting practices; and initiating independent budget analysis and participatory public-expenditure tracking programmes that monitor budget execution and leakage of funds. Independent budget analysis makes budget information available to the public, influences allocation and revenue policies, and initiates debate on sector-specific implications of budget allocation (such as gender implications). Participatory budgeting forces local governments to make budget information available to ordinary citizens and to report regularly on the execution of the previous years commitments. As citizens gain ownership of the process, they are motivated to oversee the implementation of their approved projects. The deeper involvement of
37. In 2006, the International Budget Project launched an Open Budget Index for 59 countries in collaboration with researchers and NGOs. The Project estimates that close to 100 organisations in 70 countries were engaged in this type of activity in 2005, compared with 10 organisations a decade earlier. See www.openbudgetindex.org
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citizens in planning and budgeting creates conditions for them to demand more accountability.38 In general, these demand-side pressures have opened a public space to demand budget discipline, tax reforms, and local revenues.39 Today, national and local legislators are becoming increasingly involved in budget debates, and the media are reporting the misuse of public expenditures. Where targeted measures such as publicising local government expenditures through the media were introduced (Uganda), they have had a strong impact on preventing such misuse (Khemani, 2006).
Conclusion: applying the diagnostic methodology
In this article we have discussed a methodology for better analysing the linkages between local discretion and accountability in three dimensions: political, administrative, and fiscal, which we analysed from supply- (public) and demand-side (social) perspectives. However, the methodology should be applied with attention to country contexts. Countries are at different starting points for decentralisation reforms, and pursue different trajectories in terms of their progression in providing local governments with the necessary discretion and ensuring accountability. There are four possible combinations of discretion and accountability in any given country context: (i) both are very low highly centralised countries with no local government accountability; (ii) discretion is high but lacks accountability this combination may actually create perverse incentives for local governments, making them vulnerable to capture by elites or prone to reckless decision-making; (iii) countries are more focused on establishing accountability structures for local governments, in many cases in the form of ex ante approvals and input controls, but without a high degree of discretion for decision-making, local governments are overloaded by accountability requirements, primarily to upper levels of government which make the major decisions, with little incentive for being accountable towards citizens; and (iv) local governments have a high degree of discretionary power accompanied by a high degree of accountability towards citizens. This scenario assumes that decentralisation in all dimensions (political, administrative, and fiscal) is fully implemented, and it successfully integrates both public and social accountability approaches. Figure 1 shows three possible trajectories, all based on combination (i), for local governance turnarounds and sequencing of local governance reforms (none of which is superior to the others). In the first, the focus is on local discretion in the short run. Bigbang decentralisation reforms are a good example, the emphasis initally on increasing political, administrative, and fiscal discretionary powers of local governments, as in
38. After its start in Porto Alegre, Brazil, in 1988, participatory budgeting has been taken up voluntarily by more than 140 municipalities. In Bolivia and Peru, and in the state of Kerala in India, it is mandatory and regulated by national legislation. 39. One of the more remarkable examples is the social audit of local government public works programmes in the State of Rajasthan, India (Jenkins and Goetz, 1999).
Figure 1: local governance turnarounds: trajectories
Trajectory I Discretion Discretion
Trajectory II
Trajectory III
Discretion
High
II
IV
III
Low
Accountability Desirable follow-through
Accountability
Accountability
Initial turnaround
Source: Adopted from Levy (2006).
286
Indonesia, where the big bang devolved functions and resources through two national laws (Law 22/1999 and Law 25/1999). Supporting laws and regulations, as well as other institutional measures to improve local accountability were introduced much later. In the second, national decision-makers put a higher priority on promoting political pluralism, administrative accountability, and financial safeguards in the short run. This was the case with the transition countries of Eastern Europe, which initially established plural democracy and strengthened local government systems and later transferred more decision-making power to local governments. In the third trajectory, both discretion and accountability are strengthened simultaneously. There are few instances of such a perfect diagonal. Against this background, to what extent should local governments be given discretion and autonomy over local decision-making? When different country contexts and conflicting interests come into play, the answer is not as simple as the theory would suggest. As reforms proceed, questions will remain about who will have what kind of powers over what kind of functions. This is why decentralisation reforms often face strong resistance during their implementation. The scenario of moving countries from combination (i) to the ideal combination (iv) is further complicated when the interests of different actors diverge. Decentralisation is ultimately a political reform; it reshapes power and accountability 40 relationships among four key classes of actors involved in service delivery, namely, citizens-clients (i.e., the poor and vulnerable), policy-makers (politicians, lawmakers, regulators), organisational providers (ministry, private sector, non-profit, and so on), and frontline providers (those who come in direct contact with clients teachers, doctors, engineers, and so on). Decentralisation incorporates a new set of actors and additional relationships in this framework: local governments. Schroeder (2004: 5) categorises four different actors that are typically relevant in local accountability systems: local residents, local governments, producers of local government services, and higher-level governments (including central government) (Schroeder, 2004: 9). Even within local governments, different actors (appointed versus elected officials) may not share the same vision or goal in the reforms. Non-governmental organisations, civilsociety organisations, community-based organisations, resident associations, traditional leaders such as chiefs, or other powerful individuals also play a role in mediating accountability relationships between local citizens and local governments. Each of these actors has a particular relation of accountability with the others, dependent on the historical, social and political constitution of their powers which may be based on ethnicity, ideology, wealth, heredity, election, appointment or other means (Agrawal and Ribot, 1999). Analysing these relationships and the impact of decentralisation reforms among them can be quite challenging, as they pursue different and sometimes conflicting roles and incentives, necessitating particular attention and caution in proposing a way forward in decentralisation reforms. Given all this complexity, coupled with the inexperience and weak capacity of local governments, decentralisation is often blamed for not fulfilling its promises and for failing to make a positive impact on development. In many cases, reforms are frequently revisited and sometimes reversed. Many central governments respond to such
40. See World Bank (2004a).
Linking Local Government Discretion and Accountability in Decentralisation 287 frictions by imposing stricter controls and excessive accountability measures on local governments, sometimes revoking crucial aspects of the discretionary powers and resources extended to them. Yet, this article argues, reducing powers and functions is not a form of accountability. It simply makes local governments irrelevant. The cause of failure vis-vis all these complexities is the absence of effective accountability systems, both upward and downward. A key message of this study is that upward accountability mechanisms introduced by central governments are necessary but not sufficient to ensure appropriate local discretion. Without sound mechanisms for downward accountability, a sole emphasis on upward accountability limits local government autonomy in decision-making and service delivery, negating the intended empowering of local governments. As mentioned earlier, moving to the perfect state of discretion and accountability may not always be possible. Admittedly, there are limited examples of decentralisation reforms that successfully link the two and bridge supply- and demand-side approaches. Some of the challenges and risks associated with adverse local country contexts and power relationships have been discussed here. The decision to decentralise is ultimately a political one. But, once the decision is made, the methodology presented here can help in studying the implications for accountability and designing appropriate mechanisms where discretion and accountability support each other. first submitted June 2009 final revision accepted December 2009
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Development Policy Review, 2010, 28 (3): 259-293

Linking Local Government Discretion and Accountability in Decentralisation

The local governance challenge: linking discretion and accountability

Serdar Yilmaz, Yakup Beris and Rodrigo Serrano-Berthet

Serdar Yilmaz, Yakup Beris and Rodrigo Serrano-Berthet

The local political setting and accountability

Serdar Yilmaz, Yakup Beris and Rodrigo Serrano-Berthet

2.1 Factors defining the local political setting

Serdar Yilmaz, Yakup Beris and Rodrigo Serrano-Berthet

Serdar Yilmaz, Yakup Beris and Rodrigo Serrano-Berthet

2.2 Making local politics downwardly accountable

Serdar Yilmaz, Yakup Beris and Rodrigo Serrano-Berthet

Serdar Yilmaz, Yakup Beris and Rodrigo Serrano-Berthet

Local administrative discretion and accountability

Linking Local Government Discretion and Accountability in Decentralisation 273

3.1 Factors affecting local administrative discretion

Serdar Yilmaz, Yakup Beris and Rodrigo Serrano-Berthet

Linking Local Government Discretion and Accountability in Decentralisation 275

Table 1: Staffing authority among subnational governments in East Asia

3.2 Making local administration downwardly accountable

Serdar Yilmaz, Yakup Beris and Rodrigo Serrano-Berthet

Serdar Yilmaz, Yakup Beris and Rodrigo Serrano-Berthet

Linking Local Government Discretion and Accountability in Decentralisation 279

Fiscal discretion and accountability28

4.1 Determinants of local fiscal discretion

Serdar Yilmaz, Yakup Beris and Rodrigo Serrano-Berthet

4.2 Making local finances downwardly accountable

Serdar Yilmaz, Yakup Beris and Rodrigo Serrano-Berthet

Table 2: Local governments and internal controls in selected countries

Ex-ante expenditure control & compliance audits

Linking Local Government Discretion and Accountability in Decentralisation 283

Source: Baltaci and Yilmaz (2006).

Serdar Yilmaz, Yakup Beris and Rodrigo Serrano-Berthet

Conclusion: applying the diagnostic methodology

Figure 1: local governance turnarounds: trajectories

Trajectory I Discretion Discretion

Accountability Desirable follow-through

Linking Local Government Discretion and Accountability in Decentralisation 285

Source: Adopted from Levy (2006).

Serdar Yilmaz, Yakup Beris and Rodrigo Serrano-Berthet

Serdar Yilmaz, Yakup Beris and Rodrigo Serrano-Berthet

Serdar Yilmaz, Yakup Beris and Rodrigo Serrano-Berthet

Serdar Yilmaz, Yakup Beris and Rodrigo Serrano-Berthet

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