Decentralization and Development Outcomes: What Does the Empirical Literature Really Say?

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This article critically reviews the empirical literature on decentralization and its relationship with development outcomes. The analysis suggests that revenue decentralization and fiscal independence, or the ability of local governments to raise their own revenue rather than relying on transfers from the national government, are the decentralization types most positively associated with development outcomes. Expenditure decentralization has no clear trend. In terms of development outcomes, most of the studies reviewed found evidence that good governance is positively associated with decentralization; but the evidence is mixed on economic growth. Some suggestions were also made for future decentralization studies.