Analyzing the Role of the Local Public Sector in Achieving Sustainable Development: Does More Spending at the Local Level Result in Better Development Outcomes?

Analyzing the role of the local public sector in achieving sustainable development: Does more spending at the local level result in better development outcomes? An analysis of the vertical allocation of public sector resources in ten developing countries Final Report July 20 13 Analyzing the Role of the Local Public Sector in Achieving Sustainable Development: Does More Spending at the Local Level Result in Better Development Outcomes? An analysis of the vertical allocation of public sector resources in ten developing countries Jamie Boex July 2013 Abstract In countries around the world, the local public sector delivers the public services that people rely on day-to-day: schools for their children, public health services, access to clean drinking water, extension services for small farmers, roads for getting goods to market, garbage collection, and so on. Many of these public services are crucial for achieving sustainable and inclusive development. While a considerable amount of research is being done on the impact of different service delivery technologies on service delivery outcomes across a wide range of public services in the developing world, relatively little is known about the extent to which the structure of a country‘s public sector—including the level of local public expenditures and the nature of local institutional arrangements—contributes to successful service delivery outcomes. The wide variety of service delivery outcomes at the local level, both within and between different countries, shouts out for a better understanding of the role that the local public sector plays in achieving pro-poor development outcomes. With support from USAID, the Urban Institute engaged in an analysis of local public sector finances in ten developing countries, with the intent to better understand the size and scope of local public sector finances in achieving a country‘s development objectives. In particular, the study analyzed the vertical allocation of resources within the public sector by considering the share of public financial resources that is spent ―close to the people‖ within the public sector at the local level. Our analysis finds that there is considerable variation in the degree to which financial resources trickle down to the local public sector (from less than 20 percent to over 50 percent), and that a positive relationship appears to exist between the size of the local public sector and government effectiveness. Acknowledgements This study builds on the Local Public Sector Country Handbook (December 2012) and is the product of the efforts and contributions of numerous researchers and research assistants. I am particularly thankful for the contributions of Faigy Abdelhak, Chethana Biliyar, Charles Cadwell, Ozias Chimunuane, Jihyun Chung, Jingqiang Du, Benjamin Edwards, Lesley Fisher, Brittany Lane, Mary Larzelere, Megan Meinen, Kimchoeun Pak, Louis Picard, Gohar Sargsyan, Renata Simatupang, Valerie Stevens, Benon Tumwine and James Wunsch in collecting, preparing and reviewing the local public sector expenditure profiles upon which the current study is based. Financial support for this study was provided by the United States Agency for International Development (USAID) under an Economic Research Partnership through Cooperative Agreement #AID-OAA-A-12-00008. Analyzing the role of the local public sector in achieving sustainable development 1 Analyzing the Role of the Local Public Sector in Achieving Sustainable Development: Does More Spending at the Local Level Result in Better Development Outcomes? An analysis of the vertical allocation of public sector resources in ten developing countries Jamie Boex July 2013 Background All development is local in nature. In countries around the world, the local public sector delivers the public services that people rely on day-to-day—schools for their children, public health services, access to clean drinking water, extension services for small farmers, roads for getting goods to market, garbage collection, and so on. In fact, almost all pro-poor public services that are believed to spur sustainable economic development are delivered at the local level, where the public sector interacts on a regular basis and in a localized manner with the people that it serves. Perhaps the most obvious indication of the critical role played by the local public sector in achieving growth-enhancing service delivery and inclusive development is the fact that industrialized countries typically spend 50 percent or more of public sector resources to fund public services at the local level, where the public sector interacts in a direct and loc