Stuti Khemani[1]
Development Research Group, The World Bank


A recent trend in decentralization in several large and diverse countries is the creation of local jurisdictions below the regional level—municipalities, towns and villages—whose spending is almost exclusively financed by grants from both regional and national governments. This paper argues that such grants-financed decentralization enables politicians to target benefits to pivotal voters and organized interest groups in exchange for political support. Decentralization, in this model, is subject to political capture, facilitating vote-buying, patronage, or pork-barrel projects, at the expense of effective provision of broad public goods. There is anecdotal evidence on local politics in several large countries that is consistent with this theory. The paper explores its implications for international development programs in support of decentralization.

Acknowledgements:  I thank Tim Besley and Jean-Paul Faguet for inviting this paper, and for their valuable comments. I also thank an anonymous referee for valuable comments.

Disclaimer:  The opinions and conclusions expressed here are those of the authors and not those of the World Bank or its Executive Directors.


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