1 Decentralization for better service delivery Regional Seminar on Poverty Analysis and Data Initiative (PADI) Jasmin Chakeri Consultant World Bank Office, Jakarta

2 Structure of Presentation What does decentralization mean? Why decentralize? How can decentralization improve service delivery? Evidence from Indonesia Conclusion

3 What does decentralization mean? Transfer of responsibilities and authorities from the center to lower levels Political, administrative and fiscal dimensions

4 Why decentralize? Often driven by political or economic motivations Improvements in service delivery often not the main goal, but a by- product Other options for improving services – “ eight sizes fit all ” (WDR 2004)

5 Why decentralize? Potential benefits Improve allocative efficiency Encourage innovation Strengthen accountability Increase participation

6 How can decentralization improve service delivery? It all depends on the design … Functional assignments General purpose transfers Specific purpose grants Local taxes and charges Minimum service standards Accountability mechanisms Civil service issues

7 How can decentralization improve service delivery? Source: WDR 2004

8 How can decentralization improve service delivery? International Evidence Empirical evidence is mixed Higher fiscal decentralization associated with lower infant mortality rates (Robalino et al.) Responsiveness of investment spending to local needs (Faguet)

9 Evidence from Indonesia Big Bang decentralization in 2001 Responsibility for most public services delegated to local governments (>400 as of 2004) 2/3 of civil service transferred to local level Earmarked grants replaced by block grant Local revenues and expenditures more than tripled between 1999 and 2002

10 Evidence from Indonesia Governance and Decentralization Survey Local Investment Climate Surveys Regional Public Expenditure Review Sectoral studies with decentralization focus Wealth of other data

11 Evidence from Indonesia Education Health Worse Same Better Same Worse Percent of households Note: percent of households that perceives services to be worse/same/better than before decentralization Source: Governance and Decentralization Survey This survey covered households in 144 kabupaten and kotas. Quality of public services has stayed the same or improved (Household perception of service quality in education and health)

12 Evidence from Indonesia Source: Ministry of Finance / WBOJ decentralization database

13 Evidence from Indonesia Size Distribution of Change in Education Budget Shares No. of LGs Change in percentage points

14 Evidence from Indonesia Size Distribution of Change in Health Budget Shares No. of LGs Change in percentage points

15 Evidence from Indonesia Unclear functional assignments Large fiscal imbalances Little authority over local taxes Danger of excessive minimum service standards Central control over civil service

16 Evidence from Indonesia