Social Capital and Fiscal Decentralization

Fiscal decentralization is not a new phenomenon for developing countries. Since the 1990s, most developing countries initiated the process of decentralization, combining political, administrative and fiscal aspects. It is a long-term gradual process of devolving revenue sources and expenditures functions from the central government to provincial and local levels. The benefits of engaging with this process include improved governance, accountability, democratization and citizen participation, the principle of subsidiary and an increased efficiency with regard to service delivery. Since local governments are closer to people and successful in extracting information on local preferences and needs at lower cost. This relation can, therefore, be instrumental in strengthening social capital. The paper defines the concept the social capital under decentralization and identifies the indicators for both fiscal decentralization and social capital. Analyzing secondary literature and case studies of best practices, we argue that giving people a voice in fiscal governmental decision making fosters social capital. The case of Pakistan is also explored and recommendations given on this process can be beneficial for the country.