ABSTRACT
This paper contrasts decentralization in Hungary, one of the most decentralized countries of Central and Eastern Europe, and in Slovakia, one of the least decentralized, during the decade of transition from socialism to market. It also draws lessons based on this experience. Has decentralization been effective? Has decentralization improved the delivery of essential services? Has it promoted efficiency, ensured accountability and encouraged democratic practices? We make the point that the effectiveness of decentralization depends on three crucial factors. First, appropriate expenditure and tax assignments. Second, governance mechanisms to strengthen accountability and fiduciary responsibility. Third, incentive mechanisms to ensure that agents deliver services of an acceptable quality at least cost. For constitutionally guaranteed entitlements, the latter condition is not easy to achieve because many principal-agent problems arise in the context of shared governance. We use as an example, education, a type of public good for which governance is typically shared between central and local levels of government.
