File2-page237 - Besley Ghatak(Mimeo Decentralisation and...

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Decentralisation and NGOs protection. Dependence on local tax bases also reduces the risk pooling capacity of government – the presence of co-variate risk (e.g. drought) in these en- vironments may imply that local tax yields are lowest when the demand for social protection is greatest – central Fnance of social protection thus helps to guard against failures in local risk sharing institutions (e.g. village councils) which cannot fully insure against covariate risk. Decentralising revenue generation also limits the redistributive scope of government – in a decentralised system of Fnance the scope to equalise opportunity sets across households will be much more limited than under a centralised system of Fnance – this failure is serious given that the bulk of redistribution in developing countries is achieved through the expendi- ture side of the budget – in the extreme, where responsibility for Fnancing basic social protection is decentralised to households through the intro-
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