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Decentralization and Local Governance in MENA : A Survey of Policies, Institutions, and PracticesEntering the 21st century, the 1999-2000 World Development Report (WDR), identifies two main forces that are shaping the world in which development policy is being defined and implemented: (i) globalization, the increasing worldwide integration of private sector interaction and commercial relationships; and (ii) localization, a process of devolving fiscal and administrative roles and responsibilities from central to sub-national tiers of government. It goes on to note that these global-private and local-public pressures are not only reinforcing, but also challenging traditional paradigms and forms of intergovernmental systems. Political decentralization, often associated with pluralistic politics and representative government, aims to give citizens more say in public policy and decision-making. Its advocates assume that decisions made with greater participation will be better informed and more relevant to diverse interests in society than those made only by national political authorities. The concept implies that the selection of representatives from local electoral jurisdictions allows citizens to know better their political representatives and allows elected officials to know better the needs and desires of their constituents. Administrative decentralization aims to redistribute authority, responsibility and financial resources for providing public services among different levels of government. It typically takes three forms: de-concentration, delegation and devolution. Fiscal decentralization vests greater autonomy and authority with local governments in matters of fiscal importance, empowering local governments to generate their own revenues, through taxes and user charges, as well as determining their expenditure priorities based on a clear assignment of functions and responsibilities. Over the last two decades, it has been estimated that more than 100 countries, most of them in the developing world, have experimented with various forms of decentralization.
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Sub-National Performance Incentives in the Intergovernmental FrameworkThis paper provides background for the
 Government of Indonesia as it considers if and how to
 introduce more robust local government performance
 incentives into the intergovernmental fiscal framework. The
 next section briefly examines the forces that have driven
 the recent national wave of interest in improving local
 government performance. This is followed by a review of the
 relatively limited set of local government performance
 incentives currently in force in Indonesia. The fourth
 section provides a conceptual overview of how to think about
 the possible expansion of local government incentive
 programs, outlining the potential role(s) of such programs
 in general and the key issues involved in designing and
 implementing them. The fifth section tentatively considers a
 number of options for additional local government incentives
 in Indonesia that the central government may wish to
 consider pursuing. The paper concludes with an outline of
 next steps for moving forward with the possible development
 of more purposeful and meaningful performance incentives in
 Indonesia's intergovernmental fiscal framework.
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Autonomy with Equity and Accountability : Toward a More Transparent, Objective, Predictable and Simpler (TOPS) System of Central Financing of Provincial-Local Expenditures in IndonesiaDuring the past decade, Indonesia has
 transformed itself from centralized governance to
 decentralized local governance. Local governments were given
 extensive expenditure responsibilities while keeping the tax
 system centralized. To finance decentralized
 provincial-local expenditures, Indonesia implemented a new
 system of intergovernmental finance. This paper provides a
 review of the equity and efficiency implications of the
 current system of central-provincial-local transfers. It
 finds that the system of intergovernmental finance
 represents one of the most complex systems ever implemented
 by any government in the world. The system is primarily
 focused on a gap-filling approach to provincial-local
 finance to ensure revenue adequacy and local autonomy but
 without accountability to local residents for service
 delivery performance. This is done through a great degree of
 academic rigor using highly complex procedures. The
 complexity leads to a lack of transparency, inequity and
 uncertainty in allocation as well as creating incentives for
 jurisdictional fragmentation and reducing own-tax effort.
 Simpler alternatives are available that have the potential
 to address equity objectives while also enhancing efficiency
 and citizen-based accountability. Such alternatives would
 represent a move away from complex gap filling and special
 allocation approaches to simple, output based transfers to
 finance operating expenditures. These would be complemented
 by capital grants to deal with infrastructure deficiencies,
 and fiscal capacity equalization as a residual program with
 an explicit standard to ensure that all local jurisdictions
 have adequate means to deliver reasonably comparable levels
 of public services at reasonably comparable levels of tax
 burdens across the country. The paper argues that such an
 alternative system of intergoveernmental finance would
 preserve autonomy, while enhancing equity, simplicity,
 objectivity, transparency and accountability.