# **3. Accountability of Local Governments to Local Citizens**

The hope of decentralization to locally elected governments is that by narrowing the jurisdiction served by a government, and the scope of public activities for which it is responsible, citizens will find it easier to hold government accountable. Roughly speaking, decentralization improves outcomes to the extent that physical proximity increases voter information, participation, and monitoring of performance, and to the extent that narrowing the scope of responsibilities of each tier of government decision makers reduces their ability to shirk on some responsibilities by performing better on others. But in order to fully analyze the question of whether locally elected governments have better incentives for service delivery we must begin with the question of why _any_ level of democratic government in developing countries, where politicians presumably depend upon support from the majority of poor people, fail to provide the basic social services from which poor people benefit. Then we can attempt to understand why the incentives of locally elected governments might be different.

It is a common observation across countries, rich and poor alike, that substantial public expenditures are systematically misallocated, for example to wage bills for bulky state administrations, to farm subsidies that impose distortionary costs on the economy and fail to benefit the poor, and to large infrastructure projects that allow political rent extraction without creating sustainable assets, all at the expense of quality public services. These misallocations have a disproportionate impact on the poor, who are known to benefit from increased access to public services. Even resources allocated to broad public services such as basic education and health might be ineffective in actually delivering those services, if, for example, the posts of teachers and doctors are used to extend the patronage of government jobs, rather than being held accountable for actual service delivery.

Misallocation has persisted despite a sea change in the way in which governments are selected and remain in office. From 1990 to 2000, the number of countries governed by officials elected in competitive elections rose from 60 to 100.<sup>4</sup> Democratization might be expected to benefit most the “median” or average voter, who in most developing countries is “poor.” Yet, public policy in emerging democracies does not seem to have benefited poor voters. Why do policy-makers that depend upon political support from the poor not effectively deliver basic services to the poor?

In recent political economy analysis (Keefer and Khemani 2005), it is argued that imperfections in political markets explain this puzzle. Political market failures in this analysis are reduced to three broad features of electoral competition—one, lack of information among voters about politician performance; two, social and ideological fragmentation among voters that leads to identity based voting and lower weight placed on the quality of public services; and three, lack of credibility of political promises to citizens. Informed voting is costly, and voters may have difficulty in coordinating information to reward (or punish) particular politicians or political parties for specific actions that improve (or worsen) the quality of public services. Similarly, socially and/or

> 4 According to the number of countries reported in the _Database of Political Institutions_ (Beck et al, 2001) as having competitive elections for executive and legislative office ( _EIEC_ and _LIEC_ equal to seven).

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