metadata: authors: 0: author: Ivanyna,Maksym
1: author: Shah,Anwar M.
count: World
docna: 0: docna: How close is your government to its people ?
            worldwide indicators on localization and decentralization
docty: Policy Research Working Paper
subtopic: Macro-Fiscal Policy,Taxation & Subsidies,Economic Adjustment and Lending,Regional Governance,Public Sector Economics,Decentralization,Public Sector Administrative & Civil
            Service Reform,Social Accountability,Public Finance Decentralization and
            Poverty Reduction,Democratic Government,Local Government,Public Sector Administrative and Civil
            Service Reform,De Facto Governments,Armed Conflict
teratopic: Public Sector Development,Macroeconomics and Economic Growth,Governance,Finance and Financial Sector Development
abstracts: cdata!: This paper is intended to provide an
            assessment of the impact of the silent revolution of the
            last three decades on moving governments closer to people to
            establish fair, accountable, incorruptible and responsive
            governance. To accomplish this, a unique data set is
            constructed for 182 countries by compiling data from a wide
            variety of sources to examine success toward decentralized
            decision making across the globe. An important feature of
            this data set is that, for comparative purposes, it measures
            government decision making at the local level rather than at
            the sub-national levels used in the existing literature.
            The data are used to rank countries on political, fiscal and
            administrative dimensions of decentralization and
            localization. These sub-indexes are aggregated and adjusted
            for heterogeneity to develop an overall ranking of countries
            on the closeness of their government to the people. The
            resulting rankings provide a useful explanation of the Arab
            Spring and other recent political movements and waves of
            dissatisfaction with governance around the world.
repnme: repnme: How close is your government to its people
            ? worldwide indicators on localization and decentralization
display_title: How close is your government to its
            people worldwide indicators on localization and decentralization
listing_relative_url: /research/2012/07/16516399/close-your-government-people-worldwide-indicators-localization-decentralization
topicv3: Local Governance m1326016 737,Administrative Decentralization m1327015 726,Fiscal Decentralization m1327382 829,Taxation m1327615 1121,Revolutionary Violence m1327774 2465
publishtoextweb_dt: 2012-07-01T00:00:00Z
historic_topic: Public Sector Development,Macroeconomics and Economic Growth,Governance,Finance and Financial Sector Development
no_of_pages: 41
author_keys: 0: author_key: 997007
1: author_key: 93058
model_extractions: WPS6138 Policy Research Working Paper 6138 How Close Is Your Government to Its People?

Worldwide Indicators on Localization and Decentralization _Maksym Ivanyna Anwar Shah_ The World Bank East Asia and the Pacific Region Poverty Reduction and Economic Management Unit March 2012
Policy Research Working Paper 6138

# **Abstract**

This paper is intended to provide an assessment of the impact of the silent revolution of the last three decades on moving governments closer to people to establish fair, accountable, incorruptible and responsive governance. To accomplish this, a unique data set is constructed for 182 countries by compiling data from a wide variety of sources to examine success toward decentralized decision making across the globe. An important feature of this data set is that, for comparative purposes, it measures government decision making at the local level rather than at the sub-national levels used in the existing literature. The data are used to rank countries on political, fiscal and administrative dimensions of decentralization and localization. These sub-indexes are aggregated and adjusted for heterogeneity to develop an overall ranking of countries on the closeness of their government to the people. The resulting rankings provide a useful explanation of the Arab Spring and other recent political movements and waves of dissatisfaction with governance around the world.

This paper is a product of the Poverty Reduction and Economic Management Unit, East Asia and the Pacific Region. It is part of a larger effort by the World Bank to provide open access to its research and make a contribution to development policy discussions around the world. Policy Research Working Papers are also posted on the Web at http://econ.worldbank. org. The author may be contacted at shah.anwar@gmail.com.

_The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent._ Produced by the Research Support Team
# **How Close Is Your Government to Its People?  Worldwide Indicators on Localization and Decentralization**

Maksym Ivanyna, Joint Vienna Institute, Michigan State University Anwar Shah<sup>1</sup> (shah.anwar@gmail.com) SWUFE, Chengdu/Wenjiang, China and World Bank

**Keywords:** Localization, decentralization, home rule, fiscal autonomy, political autonomy, administrative autonomy, local governance, government accountability, trust in governance, good governance, responsive, accountable and fair governance. **JEL-classification:** H10, H11, H83, I31, O10

Sector Boards: PS, ES, HNP, SP, SDN,HDN,

> 1 The authors are grateful to Professors Robin Boadway and Melville McMillan for comments on an earlier version of this paper.
# **How Close Is Your Government to Its People?  Worldwide Indicators on Localization and Decentralization**

Maksym Ivanyna, Joint Vienna Institute, Michigan State University Anwar Shah (shah.anwar@gmail.com) SWUFE, Chengdu/Wenjiang, China and World Bank

# **Introduction**

A silent revolution has been sweeping the globe since the 1980s. Hugely complex factors such as political transition in Eastern Europe, the end of colonialism, the globalization and information revolution, assertion of basic rights of citizens by courts, divisive politics and citizens’ dissatisfaction with governance and their quest for responsive and accountable governance have been some of the contributing factors in gathering this storm. The main thrust of this revolution has been to move decision making closer to people to establish fair, accountable, incorruptible and responsive (F.A.I.R.) governance. The revolution has achieved varying degrees of success in government transformation across the globe due to inhibiting factors such as path dependency accentuated by powerful political, military and bureaucratic elites. While there has been monumental literature dealing with various aspects of this revolution, there has not been any systemic study providing a time capsule of the changed world as a result of this revolution. Such an assessment is critical to providing a comparative world perspective on government responsiveness and accountability. This paper takes an important first step in this direction by providing a framework for measuring closeness of the government to its people and providing a worldwide ranking of countries using this framework.

The paper is organized as is four parts as follows. Part I is concerned with highlighting the conceptual underpinnings and developing a framework to measure closeness of the government to people. It presents a brief overview of conceptual underpinnings of moving governments closer to people. This is followed by a discussion of basic concepts in measuring government closeness to its people. It calls into question the methodologies followed by the existing literature and argues for a focus on the role and responsibilities of local governments as opposed to sub-national governments where intermediate order governments typically dominate. It is the first paper that advocates and treats various tiers of local governments (below the intermediate order of government) as the unit of comparative analysis for multi-order governance reforms.

Part II presents highlights of the unique dataset compiled for this study. It presents summary statistics on structure, size, tiers of local governments and security of their existence. It also presents summary statistics on the various subcomponents of political, fiscal and administrative decentralization.

Part III is concerned with empirical implementation of the framework presented in Part I. It begins by highlighting the relative importance and significance of local governments. This is followed by providing country rankings on various aspects of political, fiscal and administrative decentralization. By combining these measurements, an aggregate indicator of localization is developed for each country. This index is then adjusted for population size, area and heterogeneity. We also provides correlations of these indexes with the corruption perceptions 2
index, citizen-centered governance indicators, per capita GDP, size of the government and the ease or difficulty of doing business in the country.

Part IV provides concluding observations highlighting the strength and limitations of the constructed indexes.

# **PART I**

# **Moving Governments Closer to People:  Conceptual Underpinning of the Rationale and an Empirical Framework for Comparative Analysis**

## **Why Closeness of Government to Its People Matters: Conceptual Underpinnings**

Several accepted theories provide a strong rationale for moving decision making closer to people on the grounds of efficiency, accountability, manageability and autonomy. Stigler (1957) argued that that the closer a representative government to its people, the better it works. According to the decentralization theorem advanced by Wallace Oates (1972. P.55), “each public service should be provided by the jurisdiction having control over the minimum geographic area that would internalize benefits and costs of such provision”, because:

- local governments understand the concerns of local residents;

- local decision making is responsive to the people for whom the services are intended,

- thus encouraging fiscal responsibility and efficiency, especially if financing of services is also decentralized;

- unnecessary layers of jurisdictions are eliminated;

- inter-jurisdictional competition and innovation are enhanced.

An ideal decentralized system ensures a level and combination of public services consistent with voters’ preferences while providing incentives for the efficient provision of such services. The subsidiarity principle originating from the social teaching of the Roman Catholic Church and later adopted by the European Union has argued for assignment of taxing, spending and regulatory functions to the government closest to the people unless a convincing case can be made for higher level assignment. Recent literature have further argued that such local jurisdictions exercising such responsibilities should be organized along functional lines while overlapping geographically do that individual are free to choose among competing service providers (see the concept of functional, overlapping and competing jurisdictions (FOCJ) by Frey and Eichenberger, 1999).

Moving government closer to people has also been advanced on the grounds of creating public value. This is because local governments have the stronger potential to tap some of the resources that come as free goods – namely, resources of consent, goodwill, good Samaritan values, community spirit (see Moore, 1996).

Moving government closer to people also matters in reducing transactions costs of individuals to hold the government to account for incompetence or malfeasance – a neo institutional economics 3
perspective advanced by Shah and Shah (2006). Finally, a network form of governance is needed to forge partnership of various stakeholders such as interest based network, hope based network, private for profit or for non-profit provides and government providers to improve economic and social outcomes. Such network form of governance is facilitated by having an empowered government closer to people that plays a catalytic role in facilitating such partnerships (see Dollery and Wallis, 2001).

In summing, a strong non-controversial case has been made by the conceptual literature to move government decision making closer to people on efficiency, accountability and responsiveness grounds. The question that is relevant is to develop a methodology for a comparative global assessment of a government’s closeness to its people. This is the focus of research in the next section.

# **Measuring a Government’s Closeness to Its People: An Empirical Framework**

A government is closer to its people if it encompasses a small geographical area and population, and it enjoys home rule and cannot be arbitrarily dismissed by higher level governments. This requires an understanding of the structure, size and significance of local governments including its legal and constitutional foundation of its existence. An empirical framework for a comparative assessment must incorporate assessment of these factors. The following paragraphs elaborate on the methodology adopted in this paper to capture these elements.

_Unit of analysis_ . The literature to-date without exception takes sub-national governments as a unit of analysis for measuring closeness to people. This viewpoint is simply indefensible.<sup>2</sup> This is because states or provinces in large countries such as USA, Canada, India, Pakistan, Brazil, and Russia are larger in population size and area than a large number of small or medium size countries. Having empowered provinces and states in these countries means that decision making is still far removed from the people. Also intermediate orders of government in large federal countries may be farther removed from people than the central government in smaller unitary states. Therefore it would be inappropriate to compare provinces in Canada or states in Brazil, India, or the USA with municipalities, say, in Greece. This approach also vitiates against small countries such as Liechtenstein and Singapore as these countries would be mistakenly rated as having decision making far removed from people. In view of these considerations, local governments are the appropriate unit for measuring closeness to people as implemented here.

_Local government tiers_ . Local government administrative structure varies across countries and the number of administrative tiers varies from 1 to 5. This has also a bearing on the closeness of the government and must be taken into consideration.

_Local government size_ . Average size of local government in terms of population and area also varies across countries and it has a bearing on potential participation of citizens in decision making. An example of potentially misleading choice of units for comparative analysis is in Fan et al 2009, where the authors create a dummy variable, which is equal to 1 when the executive bodies at the lowest tier of government are elected. As a result, say Bangladesh gets 0, and Indonesia gets 1, which suggests that at the lowest tier Indonesia is more politically decentralized than Bangladesh. However, the average population of the local government unit in Indonesia is

> 2 Sub-national government as a unit of analysis may still be appropriate in other areas of fiscal federalism literature, such as interjurisdictional tax competition or yardstick competition

4
about 0.5 million, while in Bangladesh (according to the definitions in the paper) it is about 100 people. There are elected executive bodies in Bangladesh at a level of administrative units with population even less than 0.5 million, which implies that Bangladesh is more politically decentralized than Indonesia.

_Significance of local government_ . Whether or not local governments command a significant share of national expenditures indicates their respective role in multi-order public governance. This is important in terms of their roles and responsibilities. For example, a local government may have autonomy but only a limited and highly constrained role as in India. This needs to be taken into consideration while making judgment on closeness of government decision making to people.

_Security of existence of local governments_ . If local governments do not have any security of existence then their autonomy can be a hollow promise. Thus safeguards against arbitrary dismissal of local governments must be examined. This is to be assessed both by de-jure the legal and or constitutional foundations of local government creation and also de-facto working of such provisions. For example, local governments in India have constitutional backing, the same in Pakistan are creatures of the provinces and in China they simply are created by an executive order. While the legal and constitutional foundations of local government in India and Pakistan are much stronger, in practice and by tradition, local governments enjoy greater security of tenure in China.

_Empowerment of local government._ This is to be assessed on three dimensions – political, fiscal and administrative (see Boadway and Shah, 2009 and Shah and Thompson, 2004).

_Political or democratic decentralization_ implies directly elected local governments thereby making elected officials accountable to local residents.. Political decentralization is to be assessed using the following criteria: direct popular elections of council members and the executive head; recall provisions for elected officials; popular participation in local elections and the contestability and competition in local elections.

_Fiscal decentralization_ ensures that all elected officials weigh carefully the joys of spending some else’s money as well as the pain associated with raising revenues from the electorate and facing the possibility of being voted out. Fiscal decentralization is to be evaluated using the criteria: range of local functions; local government autonomy in rate and base setting for local revenues; transparency and predictability and unconditionality of higher level transfers; finance follows function or revenue means more or less match local responsibility; degree of selffinancing of local expenditures; responsibility and control over municipal and social services; autonomy in local planning, autonomy in local procurement; ability to borrow domestically and from foreign sources; ability to issue domestic and foreign bonds; and higher level government assistance for capital finance.

_Administrative decentralization_ empowers local governments to hire, fire and set terms of reference for local employment without making any reference to higher level governments, thereby making local officials accountable to elected officials. This is to be assessed using indicators for: freedom to hire, fire and set terms of reference for local government employment; freedom to contract out own responsibilities and forge public-private partnerships; and regulation of local activities by passing bye-laws.

5
(1) <!-- Start of picture text --> LG_pop = aT * P<br>= Xj<br><!-- End of picture text -->
<!-- Start of picture text --> My % f’ a<br><!-- End of picture text --> Table 1: Local Government Administrative Structure and Size by Region and Income Class of Countries

||# t|iers|av. p|op.|av.|area|
|---|---|---|---|---|---|---|
||mean|sd|mean|sd|mean|sd|
|Total|2.03|(hs|101.06|175.47|2.13|6.95|
|By region:|||||||
|Southern Asia|243|0.98|70.76|75.5|0.32|(0.58|
|Europe and Central Asia|2|0.74|90.49|56.38|0.29|O4|
|Middle East and North Africa|2|0.86|11.79|116.41|5.14|15.68|
|SubSaharan Africa|2.02|0.76|17164|178.56|4.00|&|
|LatinAmericaand Caribbean|1.74|0:63|63.16|51.88|1123|1.73|
|Fast Asia and Pacific|25|i|W714|379.83|1.22|3.53|
|North America|2|0|11.6|6.79|1.32|L723|
|By income:|||||||
|high income|L69|(67|7251|119.35|1.13|2.71|
|middle upper income|L760|O<.72)|«667.506|678.76|4.00|13.95|
|middle lower income|235|(0.76|93.99|246.423|1.12|23.33|
|lowincome|3.96|(0.82|163.295|178.02|2.58|5.45|

Source: Authors’ calculations based upon data sources reported in Annex Table Al. Note The classification of the countries is according to the World Bank.
Table 2: Local Government Administrative Structure and Size : Frequency Distribution of Countries

|Name<br>n|N<br>|Min <br>|Max <br>|Distribution<br>al|Countries,<br>e—£$§|Coun<br>|tries,<br>wn||
|---|---|---|---|---|---|---|---|---|
|noeO|a|1|4|.<br> ; s-|<br>|tier-47countries|Iran(<br> Bang<br>Chin<br>car(4|4}<br>ladesh(4)<br>a/4) Mada<br>)|zas-|
|||||.|East-Timor<br>(1.1|Soma|lia<br>(0.9|mln)|
|;<br>LG<br><br>|||||th)<br>Eq.<br>Guinea<br>|Con<br>|o<br>DR<br>|(0.6<br>|
||||||||||
|popu-<br>lation|177||nln|-<br>a|<br>th) Cyprus (1.6 th)<br>Switzerland<br>(2.7<br>th)|mln) <br>mln) <br>min}|Burundi <br> Indonesi|(0.5<br>a (0.5|
|||||.|Czech<br>Rep<br>(0.01|Lybi|a<br>(70.4.|tsk)|
||||||tsk)<br>France<br>(0.01|Bots|wana|(43.9|
|LG<br>aver-<br>||0.01<br>|70.4<br>||tsk) Lebanon (0.01<br><br><br>|tsk) <br>|Somalia <br>|(35.4<br>|
|agearea|177|tok|tek||tsk)<br>India<br>(0.01<br><br>|tsk) <br>|Namibia <br>|(13.7<br>|
|||||Sree|tsk)<br>Phillipines|tsk)|Congo|DR|
||||||(0.01tsk)|(11.6|tsk)||

Source: Authors’ calculations based upon data sources reported in Annex Table Al. Note Units of measurement: th - thousand people, min - million people, fsk - thousand square kilometers. Distribution of 6G avernge population is only for countries with this indicator lower than 200 thousand people (87% of the sample). Distribution of LG averge aree is only for countries with this indicator lower than 4 thousand sq. kilometers (92% of the sample}
<!-- Start of picture text --> = ss eS aD (i Fa = ~<br>: “Sy 5 ee EF Z , }<br>, ee: 3 O ae n>)» \ . : . .<br>* b; . * ¢ Q b ae. y we -<br>F 9, Fe é t y Q0 ‘<br><!-- End of picture text -->
<!-- Start of picture text --> 7 pSa‘-a<br>; as aa o..<br>~ : ”, : ‘I { vf ne ee<br><!-- End of picture text --> Table 3: Definitions of Variables for Measuring Relative Importance and Security of Existence of Local Government

|Name|Type|Definition|
|---|---|---|
|(Importance ofLG)|0-100|LG expenditures as% ofGG expenditures<br>1 - legislative safeguards against dismissal of LAG council by|
|LG<br>independence|Discrete:<br>0,|CG; 0.5- LG can be dismissed under certain circumstances|
|(Security<br>of<br>LG|0.35,<br>0.5,|(prescribed by law or constitution); 0- LG can be dismissed|
|existence)|0.75, 1|in an arbitrary situation. 0.25 or 0.75 - if LG are treated<br>asymmetrically|

Source: Authors’ calculations based upon data sources reported in Annex Table Al.
<!-- Start of picture text --> FG, i. ue =<br>‘a Oty TR,<br><!-- End of picture text --> <!-- Start of picture text --> =a g =<br>i eee,<br><!-- End of picture text -->
Table 4: Frequency Distribution of Countries on Local Government Independence and Their Relative Significance

|Name|N|Min|Max|Distribution|ountries, om|ountries, tena<br><br><br>|
|---|---|---|---|---|---|---|
|LG inde.<br>pendence<br>.<br>(Security<br>of<br>exis:<br>tence)|182|0|1|.<br>.<br>a<br>=|.<br>0 - 89 countries|i<br>-<br>Denmark,<br>Brazil,<br>Austria,<br>Norway,<br>Sweden,<br>Switzerland<br>0.75<br>-<br>Poland,<br>Iceland.<br>Canada.<br>Ethiopia, Germany,<br>Belgium,<br>Estonia,|
|||||=||USA,<br>Finland,<br>Japan, Korea<br>Denmark(59.4)|
|LG||||||Uszbekistan(55)|
|expendi-<br>|15g|0|50.4||j0.02 - 29 countries|China/51.4)<br>|
|tures||||=.<br>ial.<br>=G||Sweden (44.2)<br>Japan(41.4)|

Source: Authors’ calculations based upon data sources reported in Annex Table Al. Note City states are excluded from the rankings
||Table 5: Fis|cal Decentralization Variables|
|---|---|---|
|Name<br><br>|Type<br>|Definition<br><br><br>|
|oo.<br>LG verticalgap|Continuous:<br>0-100|Grants from other<br>govt's<br>(same- or upper-tier, also from<br>other countries) as%ofLG revenues m<br>1<br>- LG regulates fully (sets base and rate) at least one<br>major tax (property, income, or sales tax); 0.5 - LG partly|
|LG<br>;<br>taxation auton-<br>omy|Discrete.<br>0,<br>0.35,<br>0.4,<br>0.75, 1|regulates (sets rate or base in CG defined boundaries, or<br>.<br>only after CG approval) at least one major tax, oF fully<br>regulates some fees and minor taxes; 0 - no administration<br>of major taxes, partial administration of minor taxes; 0.25<br>or 0.75 - LG are treated asymmetrically<br>1 - at least half of transfers (to LG budgets from same-|
|.<br>EG _imeondional<br>LGexpenditure au-|Discrete:<br>0**,**<br>0.25,<br>0.6<br>0.75, 1<br>Continuous:|or upper-tiergovernments)areunconditionalandformul**a**-<br>based; 0.5 - quarter to half of transfersare uncondition l<br>and formula-based; 0 - all transfers are either conditional or<br>discretionary; 0.25 or 0.75 -LG are treated asymmetrically<br>Derivative ofLG unconditional transfers andLG vertical|
|tonomy<br>.<br>LG borrowing free-<br>dom|o-1<br>Discrete:<br>0,<br>0.35,<br>0.5,<br>0.75,1|gap. See formula (2)<br>1 - borrowing is not reculatedby CG; 0.5 - borrowing only<br>fromOG or underOG approval or regulation; 0 -borrowing<br>isnotallowed;0.25 or0.75-LGaretreatedasymmetrically|

Source: Authors’ calculations based upon data sources reported in Annex Table Al.

lg_expaut = 1 — lg_vergap * (0.75 — 0.5 * lg_transf), (2)
Table 6: Fiscal Decentralization: Frequency Distribution of Countries

|Name<br>|N<br>|Min <br>|Max <br>|Distribution<br>|ountries, ow<br><br>5|ountries,<br>ten Wa<br><br>|
|---|---|---|---|---|---|---|
|LG<br>vert.<br>gap|18|0|100|5<br>;<br>eo<br>7|Niger(0)<br>Togo(0)<br>Iran<br>(5.9)<br>Ice-<br>land(9.2)<br>Roma-<br>nia(9.5)|Syria(100)<br>Uganda(90)<br>Bu-<br>rundi(90) India(9D)<br>Burkina Faso(90)|
|LG<br>stax.<br>auton-<br>~|158|0|1|7<br>LJ|0 - 71 country|1 - 35 countries|
|LG<br>sun<br>cond.<br>transfers|159|60|1|=<br>.|0 - 56 countries|1 - 45 countries|
|auton.<br>,|182|0.25|1|r<br>.<br>||0.25 -29countries|Singapore(1),<br>Iceland(0.98)|
|LG barr.<br>freedom|160)|60|1|a|0 - 89 countries||] - 32 countries|

Source: Authors’ calculations based upon data sources reported in Annex Table Al.
<!-- Start of picture text --> a,<br><!-- End of picture text --> <!-- Start of picture text --> Ne é.<br>3 2h<br><!-- End of picture text --> <!-- Start of picture text --> _<br><!-- End of picture text -->
||Table 7: Poli|tical Decentralization Variables|
|---|---|---|
|Name|Type|Definition<br>|
|LG legislative elec.<br>.<br>tion|App. contin-<br>.<br>uous: 0-1|Final value: average over all fiers considered, for each tier:<br>1 - whole council is directly elected; 0.5 - council is partly<br>elected, partly appointed, council is elected indirectly, LG<br>.<br>a<br>.<br>are treated asymmetrically; 0 - council is appointed, or does<br>t<br>exist<br>:<br>.<br>Final value: average over all tiers considered;<br>for each|
|LG executive elece<br>tion<br>.<br>Direct democracy|App. contin-<br>vous: 0-1<br>.<br>Discrete:<br>(),<br>0.95.05.<br>1<br>“oe|tier:<br>1 - mayor is directly elected; 0.5 - mayor is indirectly<br>elected, does not exist, coexistwith an appointed executive,<br>LG are treated asymmetrically; 0 - major is appointed|<br>1 - obligatory referendum in case of certain gov't decisions<br>(prescribed by law or constitution); 0.5 - obligatory public<br>approval in case ofcertain gov't decisions (public hearings,<br>_.<br>.<br>-.<br>citizen assemblies); 0.25 - lez. provisions for other forms<br>of citizen participation (civil councils, open LG sessions,<br>possibility to submit petition or initiate referendum); 0 -<br>noleg.provisionsfordirectdemocracy|

Source: Authors’ calculations based upon data sources reported in Annex Table Al.
Table 8: Political Decentralization: Frequency Distribution of Countries

|Name<br>S|N<br>|7<br>.<br>.<br>+<br>2<br>‘J<br>—_<br>—**,**<br>ir =<br>Min Max Distribution<br>Countries, low val<br>Countries meh val<br>S<br>UBS|
|---|---|---|
|LG<br>leg.<br>election<br>|173<br>|0<br>-<br>14<br>countries<br>finel.<br>Haiti,<br>.<br>0<br>1<br>Malaysia, Lesotho,<br>1 - 113 countries<br>al a a_—o<br>Liberia, Oman)<br><br><br><br><br><br> <br>|
|LG exec <br>election|69|0<br>1<br>|<br>|<br>|<br>0-36countries<br>1 -36countries<br>.|
|Direct<br>demo-<br>racy<br>Source: Aut|147<br>hors’ c|.<br>;<br>S**wit**zerland(1<br>0<br>1<br>0 - 60 countries<br>zerland(1)<br>USA(1) Japan(1)<br>.<br>=—_<br>alculations based upon data sources reported in Annex Table Al.|
|ce<br>;<br>»|nS<br>vy|ar<br>se<br>*,<br>2<br>ae<br>anSiis. .<br>;<br>RS<br>g£ .ibd<br>d<br>*|
|||eX 5)<br>wil<br>=<br>C—O<br>a<br>7<br>~‘<br>7<br>fad<br>“|<br>-<br>UGE<br>3<br>oe|

<!-- Start of picture text --> ce ar se *, 2 ae<br>;<br>» nS anS iis. . ; RS g£ .ibd<br>vy d *<br><!-- End of picture text --> <!-- Start of picture text --> eX 5) wil = C—O<br>a 7 ~‘ 7 fad<br>“| - UGE<br>3 oe<br><!-- End of picture text -->
Table 9: Administrative Decentralization Variables

|Name|Type|Definition|
|---|---|---|
|.<br>LG employment<br>.<br>LG HE policies|Continuous:<br>0-100<br>.<br>Discrete:<br>O),<br>-<br>-<br>0.25,<br>0.8,<br>0.75.<br>1<br>,|LGemploymentas% ofGGemployment(excludinghealth,<br>education and police sectors]<br>1<br>- full LG discretion over local employment (subject to<br>general CG laws); 0.5 - partly LG discretion (hiring but<br>.<br>_.<br>terms for public employment are set by CG, hiring only<br>.<br>es<br>;<br>:<br>;<br>to the minor posts, hiringfrom selected byCG candidates,<br>hiringafterCG examination); 0- noLG discretion in hiring;<br>0.25or0.75-LGaretreatedasymmetrically|

Source: Authors’ calculations based upon data sources reported in Annex Table Al.

|Table 10:|Admi|nistr|ative|Decentralization: Freque|ncy Distribution of|Countries|
|---|---|---|---|---|---|---|
|Name<br>|N<br>|Min <br>|Max <br>|Distribution<br>—|Ouairies,<br>tow ¥<br>—des<br>e|OUTETES,<br>ED va<br>g|
||||||<br>|China(®#0)<br>=Alba-|
|LG<br>em<br>ployment<br>LG<br>HE<br>policies|144<br>15s|0<br>O|2<br>1|;<br>-<br>oo<br>oa<br>|a<br>-|close to 0- 7 coun-<br>.<br>tries<br>0-77countries|nia(80) Norway/80)<br>.<br>:<br>Finland(80)<br>Swe<br>den(80)<br>|-43countries|

Source: Authors’ calculations based upon data sources reported in Annex Table Al.
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Table 11: Indexes of Decentralization: Frequency Distribution of Countries

|Name<br>—<br>|N<br>_<br>|Min<br><br>|Max <br>—<br>|Distribution<br><br><br>|oumrles,<br>tow<br>1<br>|
|---|---|---|---|---|---|
|Fise.dec <br>Pol. dec.<br>Adm.<br>dec.<br>Dec.ine<br>dex|iss <br>182 <br>182 <br>i58|0<br> 0<br> 0<br>0|0.4 <br>1 <br>0.93 <br>0.44||<br>_<br>.<br> wlll)<br> |<br>||00.01 - 69 coun-<br>tries<br>0-18countries<br>0-32countries<br>0-0.01-66coun-<br>tries|

Source: Authors’ calculations based upon data sources reported in Annex Table Al. Note
Table 12: Decentralization Indexes: Top Ten Leading Countries

|N|fiscal|political|administrative|overall|
|---|---|---|---|---|
|||Hong<br>Kong<br>(1)|Switzerland<br>(1)|Finland(0.9)|Denmark(34|
|3|Singapore<br>(1)|Japan( 1)|Norway(0.9)|Sweden(21)|
|3<br>4|Switzerland<br>(0.96)<br>|USA (1)<br>|Denmark(0.9)<br>|Switzerland<br>(20)<br><br>|
||USA (0.9)|Greece<br>(0.83)|Sweden(0.9)|Hong<br>Kong<br>(17)|
|5|Denmark(0.9)|Uruguay<br>(0.83)|Albania<br>(0.9)|Singapore<br>(17)|
|6|Canada (0.9)|Brazil(0.83)|Switzerland<br>(0.9)|Finland(16)|
|7|Luxembourg<br>(0.39)|Canada{0.83)|Armenia<br>(0.88)|Japan (15)|
|8<br>|Iceland<br>(0.79)<br>|Mexico<br>(0.83)<br>|Moldova(0.84) <br>|Norway (15)<br>|
|i)|New Zealand<br>(0.78)|Italy (0.83)|Hungary<br>(0.82)|USA (14)|
|10|Australia<br>(0.78)|0.75<br>-<br>23<br>countries|Canada<br>(0.75)|Korea (12)|

Source: Authors’ calculations based upon data sources reported in Annex Table Al. Note Presented are top ten leading countries by fiscal, political, administrative and overall (main) indexes are presented.

di = lg-expdec+(0.25+0.75+lg_indep)« fdi*(0.25-+0.75*pdi)*(0.25+0.75+adi). (6)
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Table 13: Government Closeness Index: Adjusting decentralization index for population and heterogeneity

|N|no adj.|Sensitive<br>(A =0.01)|moderate<br>(A=0.1)|conservative<br>(A=1)|ard].<br>area<br>(4 =0.1)|heterogeneity<br>(4 =0.1)|
|---|---|---|---|---|---|---|
|1<br>2|Denmark<br>(34)|Switzerland<br>(40)|Switzerland<br>(31)|Denmark<br>(31)|Switzerland<br>(31)|Denmark<br>(32)|
||Sweden (21)|Denmark<br>(29)|Denmark<br>(31)|Switzerland<br>(27)|Denmark<br>(31)|Switzerland<br>(29)|
|3|Switzerland<br>(20)|USA (21)|Sweden (20)|Sweden (20)|Sweden (20)|Sweden (20)|
|4|Hong<br>Kong<br>(17)|Finland (21)|Finland (19)|Finland (18)|Finland (19)|‘Finland (19)|
|Hi|Singapore<br>(17)|Sweden (20)|USA (19)|USA (17)|USA (19)|USA (18)|
|6|Finland (16)|Iceland (19)|Norway (17)|Norway (16)|Norway (17)|Norway [17)|
|T|Japan(15)|Norway(18)|Iceland(16)|Iceland(14)<br>|Iceland(15)<br>~|—Iceland(16)|
|8<br>|<br>Norway (15)<br>|<br>Japan (13)<br>|<br>Japan (13)<br><br>|<br><br>Japan (14)<br><br>|<br><br>Japan (13)<br><br>|<br>Japan (13)<br><br>|
|La)|USA (14)|Austria (12)|Hong<br>Kong<br>(13)|Hong<br>Kong<br>(13)|Hong<br>Kong<br>(13)|Hong<br>Kong<br>(13)|
|10|Korea (12)|Hong<br>Kong<br>(11)|Singapore<br>(11)|Singapore<br>(12)|Singapore<br>(11)|Singapore<br>(11)|
|Source: <br>Note In<br>for: co<br>populat<br>corresp<br>benchm<br>N = 43<br>1.|Authors’ calcu<br> each column t<br>lumns 2-4 - only <br>ion and area, 6 <br>onding sensitivit<br>ark country is a<br>2953, area — 0.|lations based u<br>op ten most de<br> for average LG<br> - for average L<br>ies (defined by<br> hypothetical <br>076, — 0.359.|pon data sources<br>centralized countr<br> unit population<br>G unit populatio<br> parameter A) a<br>country with med<br> The original dece|reported in An<br>ies are presente<br>, column 5 - for<br>n and heterogen<br>re in the bracke<br>ian parameters <br>ntralization ind|nex Table Al.<br>d. Indexes are <br> average LG uni<br>eity index. The<br>ts of column titl<br> from thesample<br>ex is presented|adjusted<br>t<br><br>es. The<br>:<br>in column|
|Table 14: Decentrali<br>momicIndicators|zation and|Closeness|Indexes:|Relationsh|ip with S|elected Ec|o-||
|---|---|---|---|---|---|---|---|---|
|<br>Tight hand side var's|||left hand <br>|side var's<br>|||descriptiv<br>|e statistics<br><br>|
||[E-2<br>|xpdec<br><br>|DT <br><br>|main<br><br>|TT <br><br>|adj.<br><br>|mean in-<br>dep-var.|st.<br>dev.<br>indep.<br>Var|
||no other<br>cont.|cont.<br>for<br>GDP;<br>|no<br>other<br>cont.|cont.<br>for<br>GDP/<br>|no<br>ot!<br>cont.|cont.<br>for<br>GDP;<br>|||
|||cap||cap||cap|||
||(1)|(2)|(3)|(4)|(5)|(6)|(7)|(8)|
|politic|20.51<br>(3.02)|14.43<br>(3.87)|7.29)<br>(1.29)|44)<br>(1.05)|8.1<br>(1.63)|5.65)<br>(1.34)|ei|2d|
|DI fiseal|33.539**<br>(4.00)|20.387+*<br>(4.35)|12.90***<br>(1.87)|11.58***<br>(1.62)|13.63***<br>(1.98)|12.07***<br>(1.68)|ad|35|
|DI administrative|27.254"<br>(3.02)|26.187**<br>(3.39)|10.26***<br>(1.65)|&.71***<br>(1.33)|11.135***<br>(1.76)|O.43*4*<br>(1.41)|=]|28|
|OGI|31.60)<br>|980)<br>|22.92*<br>|10.97<br>|27.57T*<br>|13.77<br>|a5|08|
||(24.96)|(29.64)|(11.84)|(8.17)|(14.89)|(10.30)|||
|GDP capita,PPP|0.26***<br>(0.01)||0.18***<br>(0.01)||O.21***<br>(0.01)||G5|14.6|
|GG cons.,=GDP|0.05<br>|0.10<br>|-0.08***<br>|0.00<br>|-0.09"*<br>|0.01<br>|18.5|||
||(0.11)|(0.10)|(0.03)|(0.02)|(0.03)|(0.03)|||
|Start of bus., # proc.<br>|-0.68***<br>(0.15)<br>|-0.44***<br>(0.15)<br>|-0.29***<br>(0.07)<br>|-0.13**<br>(0.08)<br>|-0.29*4*<br>(0.06)<br>|-0.11**<br>(0.05)<br>|7.4<br>|6.4<br>|
|#civilconflicts|-0.36*<br>|0.09<br>|~0.08<br>|0.10<br>|0.08<br>|0.12<br>|a|om]|
||(0.21)|(0.26)|(0.08)|(0.08)|(0.07)|(0.08)|||
|Corruption pere. ind.|21 0*+*<br>(0.53)|1.10<br>(0.95)|1.317<br>(0.28)|Lar**<br>(0.36)|Lager<br>(0.28)|1.5<br>(0.37)|4|21|
|Democracyscore|0.00**|0.03|0.049**|O.01|0.04**|0.01|aT|18.8|
||(0.04)|(0.04)|(0.01)|(0.01)|(0.01)|(0.01)|||
|Durab.ofregime|0.08**|-0.00|0.07***|0.04**|O.08***|0.05**|22.6|30.4|
||(0.03)|(0.03)|(0.02)|(0.02)|(0.02)|(0.03)|||

Note * - significant at 10% level, ** - significant at 5% level, *** - significant at 1% level. Abbreviation: DI - decentralization index. Corruption perception index (source - Transparency International), GDP per capita (source - WDD), GG consumption (source - Penn World Tables correspondingly), Start of business, # proc. (source - WE Doing Business), Democracy score (source - Polity IV), Durability of regime (source - Polity IV) are from 2005. CGI - citizen-centric gowermance indicators (source vanyna and Shah (2009)), 4 civil conflicts (source -WDI) are averages in 2000-2005.
# **PART IV**

# **Concluding Remarks**

The silent revolution of the past two decades has attracted strong policy and research attention worldwide. The assessment of the impact of this revolution in moving decision making closer to the people, however, remains an unanswered question. This paper takes an important first step in this direction by providing a framework of comparative measurement and developing worldwide ranking of countries on people empowerment on various aspects of government decision making. While there is a crying need for systematic collection of quality data needed for the application of the comparative framework presented here, the integration of available diverse dataset as done here has yielded promising results. For example, the closeness indexes presented here show that one could have predicted well in advance with a fair degree of accuracy countries that were ripe for popular people revolt such as the one experienced through the Arab Spring or similar movements across the globe. The indexes also provide useful barometers of the enabling environment for doing business or promoting growth and economic development and good governance. Overall they provide useful aggregate measures of government closeness to their people. We hope this paper will stimulate further research to improve upon the data and the methodology presented here as well as facilitate building common consensus in countries poorly ranked here for fundamental governance reforms.

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