Why do local institutions matter?: The political economy of decentralization

In the last decades, decentralization reforms have often come to the fore of the policy debate in both OECD and non-OECD countries. In spite of the many theorised virtues, these reforms might fail to deliver when local institutions are too weak to guarantee higher accountability of local policy-makers to constituents. To support this argument, this paper analyses the political economics of decentralization reforms in three countries (Burundi, Brazil and Belgium) that differ in terms of their stage of development as well as the “intensity” of their decentralized institutions. In unstable political settings—like those characterising post-conflict countries—, decentralization may fail if leaders exploit entrenched rivalries to weaken local institutions and compete unfairly for power. In more stable settings, decentralization may entail coordination costs that prevent local leaders to jointly provide a decentralized public service and even create incentives for free-riding. Local political dynamics may exacerbate these coordination costs, with collusion among politically aligned leaders blurring their accountability to citizens and leading to lower-quality public services.