government can also be involved in training and capacity building of local governments, as well as auditing and evaluating their fiscal performance (Shah, 1994).

The creation of intergovernmental bodies is the other mechanism to align national priorities with local needs. Although the design of such bodies can be quite diverse (Box 5), the general purpose is to create semi-autonomous bodies or forums where various – intergovernmental but also other– actors can interact with each other in a nonconfrontational setting. These intergovernmental institutions regulate systems of transfers, and may also serve as a forum to discuss local government’s own-source revenues and borrowings. Such an entity would allow central governments to advance national development strategies, while giving local governments the opportunity to express their needs. To a large extent, the success of such institutions may depend on their specific design and on the political will of the national government to share power with subnational units.

# **_Box 5. Institutional design for intergovernmental fiscal relations_**

There are five main alternatives of intergovernmental fiscal arrangements, especially for the design of the grant systems:

- The first is for the **_federal government_** alone to decide on it. This alternative negates federalism and would not be acceptable in many countries

- The second is to set up a **_quasi-independent body_** , such as a grants commission, to design and reform the system, as practiced in Australia, India and the Republic of South Africa  (this alternative is prone to more ideal solutions rather than pragmatic approaches and therefore runs the risk of presenting complex solutions and recommendations that may not be politically palatable)

- The third alternative is to use **_federal-state committees_** negotiate the terms of the system as is done in Canada

- The fourth alternative is to have a **_joint intergovernmental cum inter-legislative commission_** such as the Finance Commission in Pakistan

- The fifth alternative is to have an i **_ntergovernmental legislative body_** , such as the upper house of the German Parliament (Bundesrat) as in Germany.

The structure of intergovernmental fiscal relations should be specific to the context of each country, depending on constitutional restrictions, political realities and other contextual factors.

<u>Source: Shah 1998 and Bird 2000.</u>

# **4. Empowerment: means and ends**

So far, the paper has argued that empowerment is most likely to be present when three conditions prevail: low costs to participation; large and flexible budgets; and a high proportion of tax revenues from a local base. These determinants of empowerment, however, do not necessarily produce outcomes that are progressive and pro-poor. Normative approaches to decentralization have largely assumed that a high degree of engagement by citizens –and local government– in decisions on local governance results in effective outcomes, but there is not yet sufficient empirical evidence to support this position. Of those few recent studies that have started to look at the outcomes of citizen participation and especially at its impact on the poor, the general conclusion is that “whether local 23