There are two distinct but related elements that have been put forward as arguments in favour of greater role for local governments in delivering public services. The first is the extensive literature on ‘fiscal decentralization’ following the works of Tiebout (1956), Oats (1972) and others. This line of argument has been reviewed intensively by various studies. However, the other element that has received relatively little attention from economists working in the area of public finance is the recent literature on public service delivery lays great emphasis on fixing the governance and accountability of service provision – especially in health and education.

Pritchett and Pande (2006) put forward the proposition that ‘effective decentralization’ (in the context of elementary education in India) will not be possible until the principles of public finance are harmonized with the principles of accountability in the design of the decentralization strategy itself. It is currently the accepted wisdom that decentralization provides an answer to increasing participation of the users (‘voice’) and enhancing monitoring by the community or the user group at the service provider level (‘client power’). In that sense, there is a direct line of accountability between the decentralized institutions.

Following the analytical framework discussed in Chapter 1, laid down by the World Development Report (2004), we can visualize the accountability framework below: