Political Accountability and Fiscal Governance: Evidence from Tanzania and Zambia

Does a government’s source of revenue explain its policy choices? The most common approach contends that policy variation results from differences in political institutions. We argue that a government’s source of revenue also strongly affects its expenditures, independent of political institutions. Using local government budget data from Tanzania and Zambia, we find that local governments devote a larger share of their budget to public services as local taxes increase. Alternatively, as local governments receive more resources from central government transfers and foreign assistance, the share of the local budget allocated to employee benefits and administrative costs rises. Since there is no variation in the powers of local governments in Tanzania and Zambia, these results are independent of differences in political institutions. Among other things, the results suggest that the effectiveness of central government and especially donor attempts to increase local government accountability will be in part a consequence of how these efforts affect the fiscal link between a local government and its citizens. 1 Correspondence: [email protected]; [email protected]