FISCAL DECENTRALIZATION AND DEMOCRATIC GOVERNANCE IN DEVELOPING NATIONS: A COMPARATIVE ANALYSIS OF SECONDARY PANEL DATA

Abstract

Decentralisation has increasingly been promoted as an institutional mechanism for strengthening democratic governance, enhancing public accountability, and making government more responsive to citizens. However, its effects vary across developing countries depending on fiscal autonomy, political accountability, and institutional capacity. This study examines the relationship between fiscal decentralisation and democratic governance using comparative panel evidence from developing countries, with the analysis restricted to data available up to 2022. The study draws on secondary sources, including the IMF Fiscal Decentralization Dataset, Varieties of Democracy (V-Dem), the World Bank Worldwide Governance Indicators (WGI), and World Development Indicators (WDI), to examine the relationship between decentralization, institutional quality, political accountability, and government effectiveness. The comparative analysis indicates that fiscal decentralization has a potentially positive but conditional relationship with democratic governance. Subnational expenditure responsibility does not necessarily produce greater democratic responsiveness where local governments remain highly dependent on central transfers or operate within weak accountability structures. Conversely, decentralization is more likely to strengthen democratic governance when fiscal responsibilities are accompanied by meaningful political autonomy, institutional checks, administrative capacity, and citizen participation. The study therefore conceptualizes decentralization as an institutional process rather than merely an administrative or fiscal arrangement. The findings suggest that effective decentralization requires a balance between local autonomy and accountability, supported by capable institutions and transparent intergovernmental fiscal relations. The study has broader implications for developing countries seeking to deepen democratic governance through decentralization reforms.