Fiscal Decentralisation And Efficiency Of Metropolitan, Municipal And District Assemblies (MMDAS) In Ghana

Abstract

Fiscal decentralisation has gain prominence over the last three decades. Proponents of fiscal decentralisation believe that, devolving government tax and expenditure responsibilities to lower tiers of governments will lead to the efficiency of governments and ultimately enhance economic growth. On the other hand, those who oppose fiscal decentralisation argue that fiscal decentralisation will result in ruins and wrecks. However, it is disappointing to note that upon all the controversies in the theory, there is little empirical research to support either argument especially in SSA. It is this gap that this research seeks to fill by providing empirical research on the effect of fiscal decentralisation on efficiency of local service delivery by MMDAs in Ghana. Thus the principal aim of this study is to investigate the effect of fiscal decentralisation on the efficiency of local service delivery by MMDAs in Ghana. To achieve our aim we have subdivided our objective into two; first we measure the efficiency of MMDAs in Ghana and after explain the variations in efficiency scores between MMDAs in Ghana. Two main approaches to the measurement of efficiency are adopted for this purpose namely the DEA and SFA. The choice of both approaches is to help check for the robustness of our results. A two-stage approach is preferred to measure and explain MMDAs efficiency using the DEA technique. First, efficiency scores are obtained by estimating an input-oriented VRS-DEA and later these efficiency estimates are then explained by a set of fiscal decentralisation and other control factors through a second-stage Tobit regression model. In the SFA technique, the one-stage approach is preferred. Our results show that, on the average, MMDAs in Ghana are technically inefficient as they can reduce their current level of resources by between 26% (according to the SFA) and 55% (according to the DEA) and still be able to provide their current level of services. Factors such as fiscal autonomy, „perceived‟ competency of local governments and effective district administration (FOAT) where found to increase efficient behaviour of MMDAs in Ghana. Vertical imbalance, per capita statutory grant, incidence of poverty and population were, however, found to be negatively associated with efficiency. We therefore concluded that MMDAs that are able to generate a greater percentage share of their revenue through internal sources are likely to be more efficient than their counterparts that generate less. However, high dependence of MMDAs on the centre for their expenditures induces inefficiency. Based on the finding of the research, we recommend that both local and central government should endeavour to make MMDAs autonomous so as to increase their level of efficiency. Also programs that are going to increase the socioeconomic development of the citizenry like reduce the incidence of poverty are to be encouraged.