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Implications Of Local Government Autonomy On Rural Development
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1.8 Theoretical Framework
This study
adopted the fiscal federation theory as the basis for this work. The
basic foundations for the initial theory of Fiscal Federalism were laid
by Kenneth Arrow, Richard Musgrave and Paul Sadweh Samuelson's two
important papers (1954, 1955) on the theory of public goods, Arrow's
discourse (1970) on the roles of the public and private sectors and
Musgrave's book (1959) on public finance provided the framework for what
became accepted as the proper role of the state in the economy. Within
is framework, three roles were identified for the government sector.
These were the roles of government in correcting various forms of market
failure, ensuring an equitable distribution of income and seeking to
maintain stability in the macro-economy at full employment and stable
prices.
The theoretical framework in question was basically
a Keynesian one which canvassed for an activist role of the state in
economic affairs. Thus the government was expected to step in where the
market mechanism failed due to various types of public goods
characteristics. Economics teaches us that public goods will be
underprovided if left to private market mechanisms since the private
provider would under invest in their provision because the benefits
accruable to her or him would be far lower than the total benefit to
society. Governments and their officials were seen as the custodians of
public interest who would seek to maximize social welfare based on their
benevolence or the need to ensure electoral success in democracies.
Once we allow for a multi-level government setting, this role of the
state in maximizing social welfare then provides the basic ingredients
for the theory of fiscal federalism. Each tier of government is then
seen as seeking to maximize the social welfare of the citizens within
its jurisdiction. This multi-layered quest becomes very important where
public goods exist, the consumption of which is not national in
character, but localized. In such circumstances, local outputs targeted
at local demands by respective local jurisdictions clearly provide
higher social welfare than central provision. This principle, which Oats
(1972) has formalized into the "Decentralization Theorem" constitutes
the basic foundation for what may be referred to as the first generation
theory of fiscal decentralization (Oats, 2004). The theory focused on
situations where different levels of government provided efficient
levels of outputs of public goods "for those goods whose special
patterns of benefits were encompassed by the geographical scope of their
jurisdictions" (Oats, 2004: 5). Such situation came to be known as
"perfect mapping" or "fiscal equivalence" (Olson 1969).
Nevertheless,
it was also recognized that, given the multiplicity of local public
goods with varying geographical patterns of consumption, there was
hardly any level of government that could produce a perfect mapping for
all public goods. Thus, it was recognized that there would be local
public goods with inter-jurisdictional spill-overs. For example, a road
may confer public goods characteristics, the benefits of which are
enjoyed beyond the local jurisdiction. The local authority may then
under-provide for such a good. To avoid this, the theory then resorts to
traditional Pigouvian subsidies, requiring the central government to
provide matching grants to the lower level government so that it can
internalize the full benefits.
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ABSRACT - [ Total Page(s): 1 ]This work titled, “Implication of Local Government Autonomy on Rural Development in Ebonyi State†A study of Ebonyi Local Government Area†was aimed at ascertaining the extent to which state interference in the management of local government revenue constituted the bane to rural development in Ebonyi State, examining the extent to which poor financial management practice in the local government hinders rural development in Ebonyi Local Government Area among others. “Fisca ... Continue reading---
