ABSTRACT
Equity concerns about decentralization are particularly acute in the case of capital infrastructure services. This is because the share of subnational governments in total capital expenditures of a country is typically twice their share in total recurrent expenditures (Martínez-Vázquez and Timofeev, 2012). This is true for developing and developed countries. While on average the subnational share of capital expenditures is 60 percent, the share of subnational governments in recurrent expenditures is 30 percent (Figure 6.1). In addition to the potential disparities in the quantity and quality of public services offered to residents, to the extent that the availability of public infrastructure determines the attractiveness of a locality for doing business, unless properly addressed, fiscal disparities in the stock of infrastructure can feed back through different levels of private investments into economic disparities, creating a vicious circle for less endowed subnational jurisdictions. For that reason central governments might desire to implement even higher degrees of equalization for productive economic infrastructure than for social infrastructure. 1
