When Does Fiscal Decentralization Deliver Equity?

Gustavo Canavire-Bacarreza, Eunice Heredia-Ortiz, Jorge Martinez-Vazquez and Moritz Meyer
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Gustavo Canavire-Bacarreza: World Bank, Poverty and Equity Global Practice, and Universidad Privada Boliviana
Eunice Heredia-Ortiz: Ernst & Young, Quantitative Economics and Statistics (QUEST)
Jorge Martinez-Vazquez: International Center for Public Policy, Georgia State University
Moritz Meyer: World Bank, Poverty and Equity Global Practice

International Center for Public Policy Working Paper Series, at AYSPS, GSU from International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University

Abstract: Persistent spatial inequalities in living standards and development outcomes pose significant challenges to countries at all stages of development. Fiscal decentralization stands out as a policy tool that aligns local development needs with financing needs, thereby enhancing both efficiency and equity. This review critically synthesizes quantitative and qualitative literature to improve understanding of the conditions under which fiscal decentralization can foster equitable and inclusive development. It identifies measurement challenges in fiscal decentralization, highlighting global trends, and the design of equitable intergovernmental fiscal transfers. The analysis further explores the complex relationship between fiscal decentralization, income inequality, and poverty reduction, asserting that institutional quality and governance are decisive in realizing the potential benefits of fiscal decentralization. Last, the review examines the literature on the pathways by which fiscal decentralization can mitigate spatial disparities, emphasizing the importance of robust frameworks, strong administrative capacity, and effective local governance to achieve sustainable and equitable development outcomes.

Pages: 43 pages
Date: 2026-03
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