ameliorate some of these information problems that lead to political market failure. On the other hand, and as per the classic argument against decentralization, articulated first by James Madison in the Federalist Papers, local governments may be more prone to elite capture as there will be fewer distinct political groupings in smaller jurisdictions, less media coverage compared to national elections, and less costly for elites to purchase the votes of less-informed voters.

# _Holding providers accountable_

In order to be able to act on the demands imposed on them by citizens, policy-makers must be able to hold the bureaucracy accountable for actually delivering these services. In general, mechanisms for monitoring and disciplining front-line providers such as teachers are weak in developing countries. Decentralization can further exacerbate these problems, as administrative devolution usually lags behind political and fiscal decentralization, and local policy-makers have limited authority over the staff assigned to them.

# _The inter-governmental framework_

Local governments’ incentives for improving service delivery are significantly influenced by the allocation of expenditure responsibilities between the local and higher tiers of government; the assignment of taxes across these levels; the design of the intergovernmental grant system; and the budgeting and monitoring of fiscal flows between different tiers of government.<sup>3</sup> The literature posits that expenditure and tax assignments should be based on considerations of economies of scale, spillover benefits, tax efficiency and equity issues. In general these considerations imply that local governments are unable to meet most of their resources through taxes, and must rely on inter-governmental grants, which creates problems of soft-budget constraints and may weaken service delivery incentives. An effective fiscal transfer system should be predictable and formula-driven, consisting of a good balance between unconditional grants, to provide local governments’ expenditure discretion, and conditional grants, to enable the center to directly specify some accountability for service delivery.

Effective expenditure assignments are also important from the perspective of political market failures. As noted earlier, to be motivated to deliver public goods, politicians must be able to effectively claim credit from voters for providing such goods to them. With multiple tiers of government, voters might have little knowledge about which tier of local government is responsible for which functions. Even though the responsibilities of the different tiers of government are clearly defined, it is likely that opportunistic politicians will exploit voters’ relative lack of knowledge by avoiding responsibility for their own lack of efforts or claiming credit for others’ actions in providing public goods. If voters are likely to be grateful to all the tiers of government when public goods increase, even if only one government contributed, then the incentive to provide that public good is diminished.

There is some cross-national evidence to support this argument. A recent econometric study found that the number of tiers of government was positively associated with corruption, and negatively with the number of paved roads or infants inoculated.<sup>4</sup> After briefly describing Pakistan’s local government system in the next section, the paper examines two of these three relationships of accountability: the ability of the public to hold local

> 3 Ahmad et al. 2004

> 4 Triesman. 2002.

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