Social Capital and Fiscal Decentralization

Abstract

Fiscal decentralization is not a new phenomenon for developing
countries. Since the 1990s, most developing countries initiated the
process of decentralization, combining political, administrative and
fiscal aspects. It is a long-term gradual process of devolving revenue
sources and expenditures functions from the central government to
provincial and local levels. The benefits of engaging with this process
include improved governance, accountability, democratization and
citizen participation, the principle of subsidiary and an increased
efficiency with regard to service delivery. Since local governments are
closer to people and successful in extracting information on local
preferences and needs at lower cost. This relation can, therefore, be
instrumental in strengthening social capital. The paper defines the
concept the social capital under decentralization and identifies the
indicators for both fiscal decentralization and social capital. Analyzing
secondary literature and case studies of best practices, we argue that
giving people a voice in fiscal governmental decision making fosters
social capital. The case of Pakistan is also explored and
recommendations given on this process can be beneficial for the
country.