Types of decentralisation and governance: Evidence from across the world

The relationship between decentralisation and quality of government is theoretically ambivalent and remains empirically mixed. The classical theory argues that decentralisation improves the ability of governments to fully respond to collective preferences. A different perspective points to some disadvantages related to problems of coordination and inertia. This paper provides a worldwide cross‐sectional analysis that tests these two contrasting views and the effect of democracy. The results robustly support that (a) decentralisation has an independent and positive effect on the quality of government, but that (b) political, fiscal and administrative types of decentralisation have quite different effects and that (c) the effect is attenuated when the effect of democracy is considered. Together, these results shed light with regard to the optimal design of reforms towards decentralisation across the world.