chapter  1
30 Pages

1 Decentralization and infrastructure: from gaps to solutions JONAS FRANk AND JORGE MARTíNEz - VázqUEz

Introduction and motivation The subnational dimension of infrastructure emerges as one of the key dimensions for improved public investment. Whether a country is centralized or decentralized, whether it relies on delegated authorities or autonomous subnational governments, it has to face the question of multi-level coordination and provision of infrastructure. Given the localized nature of most infrastructures, the territorial dimension cannot be obviated. Any country that wishes to improve service delivery, increase competitiveness, as well as foster growth through investment in infrastructure faces the intergovernmental coordination challenge. The approaches which countries have used to tackle this multi-level challenge vary widely. Some countries execute up to 90 percent of their public investment through subnational level governments, while others not nearly 10 percent. But this share of expenditures is not always a good indicator of the decision-making authority of subnational governments in the selection, prioritization, funding, and execution of infrastructure projects. The several stages and decision-making steps which need to be coordinated across levels typically give rise to a complex web of accountability over final results. Not surprisingly, outcomes have been mixed and vary widely from country to country and from region to region in the same country. The greatest challenge is that inefficiencies in management and execution can be pervasive across the different subnational units ultimately translating into poor service delivery and wasted resources. The main objective for the collection of original essays in this book is to advance our understanding of the interplay between decentralization and infrastructure. This fundamental issue is approached from multiple perspectives and in an interdisciplinary fashion. The chapters in this book are intended to cover the most important aspects of infrastructure investment in a decentralized setting. They discuss the nature of the infrastructure gaps and the quality of subnational spending; inquire how functional responsibilities, finance, and equalization can be best designed; discuss issues related to infrastructure and service delivery in different areas of the public sector; drill-down to key steps of the public investment cycle and management aspects; and also analyze political economy and

2 J. Frank and J. Martínez-Vázquez

corruption challenges. The essays offer academic rigor but also attempt to inform the policy debate with the aim of improving the outcomes of decentralized investment spending. Far from representing a closed set of final recommendations, the chapters highlight diverse views and avenues for improving public investment in decentralized settings, keeping in mind that ultimately what will work needs to be “country and place specific.” Against this backdrop, three global challenges have motivated this book:

i Coordination matters: The volatile macro environment which prevails internationally underscores now more than ever the need to coordinate public investment and infrastructure provisions across levels of government. While responses to the 2007/2008 crisis have varied and involved different strategies regarding capital spending, countries will continue to rely on subnational levels of government to provide a substantial part of their infrastructure needs. National growth inherently relies on regional growth, and due to its localized nature, public investment can be a critical ingredient to achieve this goal. However, decisions to spend, and decisions to finance, are often not taken on the same level of government. Poor coordination within decentralized systems of government can prevent countries from achieving their goals.