Impact of Fiscal Decentralization in Improving Public Services Delivery across Developed and Developing Districts of Punjab, Pakistan

Abstract

Countries around the globe are devolving fiscal, administrative, and political powers to sub-national governments. Generally, the federal transfer system places constraints on local government’s ability to plan and to administer the efficient provision of basic public services. The Devolution Plan in Pakistan was formed on August 14, 2000, which strongly recommended the transfer of power and authority to the lower tiers with the objective of better provision of public services. In addition, the Local Government Ordinance transferred the political, administrative, and fiscal powers to the district and tehsil level in Pakistan. Following 2008, with the shift in the political hierarchy, the higher tiers regained their authority. This study aims to examine the impact of fiscal decentralization in the improvement of public services in 34 developed and developing districts of the Punjab Province, Pakistan, during a 13-year period, from 2003 to 2015. The first differenced GMM and system GMM techniques are applied for the estimation of study data. The comparative analysis of this study finds that fiscal decentralization improves education in developed districts while in developing districts, there is no evidence of improvement. In addition, there is evidence of improvement in health outcomes, in the case of both developed and developing districts of Punjab. Decentralized reforms presented under Local Govt. Ordinance 2001 was only effective during the Pervez Musharraf regime, but after the end of this regime, in 2008 this policy became ineffective, because of recentralization. The transfer of power and authority is suggested to the local governments with a special focus on developing districts of Punjab, Pakistan.