**_(2) Expenditures_** : Concerning local expenditures, the policy recommendation would be to increase the size and flexibility of the budget over which citizens have power. There are, however, at least two considerations associated with this recommendation. First, local government's capacity to increase its budget flexibility is limited by the lack of full control over the allocation of certain expenditures –like wages– that are decided by line departments. This situation calls for consolidation of power in local elected bodies, but this involves a series of deep civil service and administrative reforms that are seldom jointly included in the decentralization process. Moreover, research shows that bureaucrats resist giving up power to local politicians. Overall, literature suggests that local elected governments should have the power to hire and fire local-level employees. This would help eliminate the conflict of local government employees’ dual responsibility between accountability to the _unit_ of government to which they formally belong and to the _level_ of government in which they work. Unless local governments have power and discretion to control their budgets, it is difficult to imagine that they will be in a position to cope with the spending preferences of their citizens, and therefore their capacity to make effective choices will be limited.

Second, the association between budget size and flexibility with empowerment will only hold if the right mechanisms for state-citizen interaction are in place. Local budgets could be large, but unless citizens have a way to transmit their spending preferences to local governments and to hold them accountable for their actions, their empowerment will be limited. This means that the specific design of mechanisms for state-citizen interaction has a direct influence on the effectiveness of such interaction. In practice, there is a variety of designs: citizens may discuss and influence the allocation of total budgets (like in Kolomyia, Ukraine) or just of capital budgets (like in Brazil). Citizens may choose from a menu of spending priorities, or they may come up with their own spending priorities. In Porto Alegre, for example, citizens have the power to make choices from a menu of priorities and receive funding or they may go outside that menu and receive less funding. This is important because it determines who participates in the allocation of budgets and who ends up benefiting from those allocations. Desposato (in Souza 2001), for example, found that the top priority of the poorest citizens in Brazil is economic survival and not infrastructure, which is the main focus of participatory budgeting in that country.

Finally, as in the case of revenues, the notion that size and flexibility of budgets are determinants of citizens’ empowerment still needs empirical validation through large-scale surveys. One exception is recent quantitative research on participatory budgeting in 5,400 Brazilian municipalities (Baiocchi et al. 2004). According to this research there is a positive and significant relationship between high proportions of capital expenditure in a municipality’s total expenditure and the likelihood that participatory budgeting is implemented. However, such type of research should be conducted in other countries and contexts; it could begin in countries like Bolivia, Guatemala, Nicaragua or Peru that have sufficient experiences with participatory budgeting.

**_(3) Costs of participation:_** Reducing the costs of participation is a last recommendation to increase citizen empowerment. However, there is still a lack of empirical evidence on the effects of the costs of participation. In order to gauge the real impact of such costs, a first

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