Fiscal decentralization and publc service delivery in South Africa

Abstract

This paper uses provincial level data from South Africa to examine how fiscal decentralization impacts basic service delivery, focusing on the role of own-source revenue. Theory suggests that fiscal decentralization and particularly revenue autonomy as represented by own-source revenue enhances service delivery through increased accountability and transparency of policy makers and service providers as well as increased responsiveness to local preferences and needs. The South African federal system is characterized by a relatively high degree of fiscal decentralization in terms of expenditure responsibilities and administration. However, owing to acute historical imbalances across provinces and municipalities, constitutional and institutional arrangements allow for extremely limited revenue autonomy. Compared to other developing countries, sub-national governments in South Africa are highly dependent on intergovernmental transfers from the central government. Accordingly, own-source revenue does not play the expected positive role to stimulate efficiency in public service delivery. Richer provinces appear to mobilize own-source revenue mainly to finance services other than education and health. Despite the focus of sub-national government financing on equity and redistribution, huge disparities exist across provinces regarding per capita revenue as well as per capita expenditure on health and education. While it is not possible to adequately assess the intergovernmental transfer system due to data limitations, the paper argues for increased fiscal decentralization and greater revenue autonomy in particular if subnational governments in South Africa are to improve service delivery by enhancing transparency and shifting accountability to the local population rather than the central government as implied by the current heavy dependence on subventions.